More Trade Brings Graft To Light - and to Trial

CALL it baksheesh, a commission, pot de vin, or simply a bribe: Corporate payments to foreign officials add billions of dollars a year to the cost of doing business around the world.

Bribes inflate the price of contracts, discourage investment, and have increased poor nations' debt by as much as a third.

All nations outlaw the corruption of their own officials, but only America and Sweden forbid national enterprises corrupting foreign officials. In many nations, corporate bribes to win overseas markets are tax deductible.

But the number of high-profile corruption cases around the world signals that public tolerance of plunder is wearing thin.

"With the growing globalization of business and recognition of the very harmful effect of corruption in victim nations, there is a greater interest now in acting against bribery," says Caroline Ervin, an official with the Paris-based Organization for Economic Cooperation and Development.

Corruption has taken an especially heavy toll on Africa, and many of its business leaders worry that the continent's reputation for corruption could exclude it from the benefits of world trade. Last August, South African President Nelson Mandela called for international action to "make corruption a more dangerous and less profitable pursuit."

A recent Swiss study finds some $20 billion under the names of past and present African leaders in Swiss banks alone.

The London-based European Bank for Reconstruction and Development, which encourages investment in the formerly Communist East bloc, has called Eastern Europe's bribe-seeking a "major deterrent" to foreign investment. And experts say corruption in China and other industrializing countries such as Indonesia, Pakistan, Venezuela, Brazil, India, and the Philippines is rampant.

"During the 1970s and '80s, the rules of the market took hold all over the planet, including in the former Soviet Union," says Yves Meny, an expert on international corruption and director at the Florence-based Robert Schuman Center. "The biggest corruption cases developed where the old rules are disappearing and the new rules are not yet in place."

International bankers and aid organizations worry that corruption could undermine the development of the world's poorest nations. "Investors and traders have to have a clean environment if we're to get the benefits of world trade and investment," says Kim Jaycox, vice president of the World Bank in charge of Africa.

In Asia, national campaigns to curb corruption are also gaining ground. In South Korea, two former presidents and several corporate chieftains face corruption charges connected with a political slush fund that may have reached $1 billion. China's nearly two-year corruption drive has resulted in the death penalty for some lower-level municipal officials and last year toppled the party secretary of Beijing. And popular disgust over corruption scandals helped to end the 38-year single-party rule of Japan's Liberal Democrats in 1993.

Mexican government investigators have discovered at least $100 million in overseas accounts, believed to be related to illegal payoffs, belonging to Raul Salinas, brother of former Mexican President Carlos Salinas de Gortari.

Crusading judges start a trend

In Europe, a handful of judges began pursuing corruption cases all the way to the top. Italy's "clean hands" campaign set the tone for a new group of independent magistrates in France, Spain, Portugal, Belgium, and Greece. Thousands of Italian politicians and businessmen have been questioned and more than 700 sent to trial for bribery since Milan magistrates launched their investigations in 1992.

On Oct. 20, 1995, NATO head Willy Claes resigned after the Belgian parliament voted to lift his immunity from prosecution. This followed charges that, as a Flemish Socialist Party official, he had known about illegal payments of $1.6 million by an Italian defense manufacturer to party coffers to influence Belgium's decision on a 1988 helicopter contract.

In France, more than 100 business and political leaders are under investigation for illegal practices. In 1993 for the first time, a French prime minister promised that the government would not block these investigations. Last year, judicial investigations led to the resignation of two government ministers and the detention of a third.

"The culture in France is slowly changing," says Thierry Jean-Pierre, one of the original French investigating magistrates and now a member of the European Parliament in Strasbourg, France. "Investigation of bribery and corruption was totally taboo here 10 years ago."

Mr. Jean-Pierre credits the example of Italy's crusading magistrates for inspiring French judges to pursue politically sensitive investigations that earlier would have been quietly dropped. French judges were also outraged by a 1990 French law granting amnesty for crimes linked to illegal party financing, he says.

Anticorruption drives started in some countries with a handful of crusading judges; in others, with newly elected governments eager to expose the misdeeds of previous regimes. But grass-roots advocacy groups argue that national solutions aren't enough. The war against corruption, like efforts to curb the drug trade or clean the environment, must be global, they say.

For example, the nonprofit Berlin-based Transparency International (TI), founded by former World Bank officials in 1993, aims to develop global networks to curb corruption.

TI organizers initially envisioned an organization modeled along the lines of the human-rights group Amnesty International to expose egregious cases of corruption. But the group subsequently developed a less confrontational approach. TI has set up national chapters in some 50 countries to work with governments to develop new laws and improve institutions to combat corruption.

"There is a new mood in Africa that the continent wants to rid itself of corruption," says Joe Githongo, a Nairobi accountant who is organizing a TI chapter in Kenya. "Unless we in Africa address this issue, we will hamper our development very seriously."

Yet the task of urging governments to move from curbing corruption of their own public officials to reining in the activities of their national enterprises abroad has met resistance from national legislatures.

For jobs-starved industrialized nations, overseas contracts are seen as a matter of national security - and bribes as a legitimate way to win them. A recent US intelligence report that analyzed illegal payments in 100 major contracts in 1994 concluded that foreign companies that offered bribes won in 80 percent of these cases.

Armed with such intelligence, the US has been putting pressure on international organizations to level the playing field in competition for international contracts. US officials want to see corporate rivals compete by the same rules enforced on American executives by the 1977 Foreign Corrupt Practices Act.

US prompts global moves against corruption

At the urging of the US, the 25-member Organization for Economic Cooperation and Development has been considering new corruption standards since 1989. In 1994, the OECD passed a nonbinding recommendation urging member states to criminalize corruption of a foreign public official. Since then, groups have been surveying legislation in member nations with an eye to harmonizing national laws on bribery.

Following revelations of fraud in its $100 billion annual budget, the European Union called on member states to make bribery and misuse of EU funds a crime under national law. The Council of Europe has assigned a group to develop an international strategy against corruption, which is expected to make recommendations this spring.

There are signs that corporate culture is already recognizing the need for a new approach. "I had many European colleagues who said in 1977, 'These Americans are crazy' and are now changing their minds because of the impact of worldwide business," says Jacques Maisonrouge, a French consultant who was IBM's top non-American executive before he retired in 1984.

"The 1977 ruling applies to all American subsidiaries abroad as well as to American-based companies. If those subsidiaries lose a contract because of a bribe, they will want to expose it," he says. "Many French companies are also investing massively in the United States and have to play by US rules. French managers want to have a worldwide policy, without exceptions."

In many nations, the fight against corruption is also becoming good business. Firms like the New York-based Kroll Associates now offer corporations investigative and auditing services to detect unethical conduct by, within, and against the organization. And accounting firms specializing in municipal finance and corruption are springing up all over France, for example, where new mayors aim to defend themselves against corruption charges by preemptive audits at the beginning of their terms.

Furthermore, top companies are finding that even the suggestion of a bribe could lose big contracts. Last year, the French electronic giant Thomson-CSF lost a $1.4 billion contract to build a radar surveillance system in the Amazon River basin after the Brazilian Congress launched an inquiry over reports that the company had bribed Brazilian officials.

Raytheon Company, based in Lexington, Mass., subsequently won the contract, but is now under investigation by the Brazilian Senate over unproven media reports that its representative in Brazil discussed a bribe payment with a Brazilian official. Both companies deny any wrongdoing.

In addition, disclosure of old bribes can now take a toll on corporate profits. Last year, the US aviation manufacturer Lockheed Corp. pleaded guilty to violating the Foreign Corrupt Practices Act and paid $24.8 million in penalties for a $1 million bribe to an Egyptian parliament member to arrange the sale of three C-130 cargo planes in the 1980s. The fine more than erased profits from the deal.