Ethics in Business Dealings Urged by World Lenders


If the war on corruption were measured by new regulations on the international scene, 1996 would go down as a banner year.

For the first time, international donors and lenders opened up a global front in this war by announcing new initiatives against bribery.

In the past, institutions such as the World Bank and the International Monetary Fund (IMF) opposed anti-corruption measures on the grounds that the issue was too politically sensitive. In addition, many rich nations feared that national curbs on bribes would put their own industries at a disadvantage in bidding for big armaments and infrastructure projects in the developing world.

But international financial institutions now argue that the costs of corruption to poor nations are simply too high to sustain. Corruption distorts public spending, increases the costs of running businesses, and deters foreign investment and aid.

In the new global economy, private investment will go to countries that demonstrate that they can use resources efficiently, and that includes demonstrating good governance, World Bank President James Wolfensohn told the annual meeting of the World Bank and IMF on Oct. 1, as he proposed a "new compact" with poor nations.

"If the new compact is to succeed, we must tackle the issue of economic and financial efficiency. But we also need to address transparency, accountability, and institutional capacity. And let's not mince words: We need to deal with ... corruption," he said.

IMF managing director Michel Camdessus sent a similar message: "Countries must demonstrate that they have no tolerance for corruption in any form."

According to the new guidelines, evidence of corruption could cancel a World Bank project and bar any firm that offers a bribe from Bank-financed contracts indefinitely. The World Bank also now requires disclosure of commissions paid to agents on its standard bidding document.

Groups such as the Berlin-based Transparency International, founded by former World Bank officials in 1993 to curb corruption, welcomed the tough new stance. "The issue of combating corruption is so basic that you can't have economic development or democracy without it," says TI Chairman Peter Eigen.

But Mr. Eigen warns that such measures should not be limited to poor nations. "There is a corrupter and a corruptee involved in every bribe, and developed nations need to take the issue more seriously," he adds.

The United States, which outlawed the payment of bribes to foreign officials in 1977, has been urging trading partners to do the same. US businesses cite bribery as one of the most difficult barriers they confront abroad.

"Most European businesses are genuinely concerned about corruption, but are afraid of losing business," says Fritz Heimann, chairman of the standing committee on extortion and bribery for the Paris-based International Chamber of Commerce (ICC). "US companies have learned that you could compete without paying bribes, but you could also lose quite a bit of business."

Since 1994, there have been allegations of bribery by foreign firms in 139 international commercial contracts, valued at $64 billion, according to a recent report by the US Commerce Department. US firms lost 36 of those contracts, valued at $11 billion, the report concludes.

In a conference on trade and investment in Zimbabwe last month, US Commerce officials warned that economic ties with some southern African nations were threatened by corruption and a lack of transparency in awarding contracts. Zimbabwe's recent decision to bypass normal bidding procedures to award a major power contract to a Malaysian firm had sparked controversy.

Ending tax-deductible bribes

At US urging, the Paris-based Organization for Economic Cooperation and Development (OECD) this year adopted a resolution to end tax deductibility for bribes in 27 member states, develop a coordinated strategy to criminalize all bribery, and enforce anticorruption measures in the use of foreign aid.

All nations outlaw the corruption of their own officials, but until recently, only the US and Sweden forbade national enterprises from corrupting foreign officials. Since the OECD decision on May 22 "to criminalize the bribery of foreign officials in an effective and coordinated manner," Britain, Norway, Canada, and Australia have also announced plans to enforce their own new laws against bribery.

"We see progress on every front," says US Ambassador to the OECD David Aaron, in an interview. "We live in an increasingly globalized economy. Governments are realizing that you just can't allow an enormous number of white-collar crimes to take place with impunity."

In the next few months, the OECD is committed to coming up with guidelines for criminalization of bribery. A key issue in the discussions is the definition of who constitutes a public official. France and Germany, which have resisted anticorruption curbs in the past, argue that political party officials and the heads of state-owned corporations should be excluded from such a new law.

American officials insist that such a narrow definition would exclude most important cases of bribery, which involve big-ticket items bought by governments, such as aircraft, armaments, and big infrastructure projects.

"Anti-bribery legislation can't be effective if you leave out party officials and the heads of state-owned companies," says an American official close to the OECD negotiations. "That's where the biggest bribes are happening."

But both rich and poor nations are discovering that having laws on the books is not enough to curb bribery. There must also be independent and reliable judicial systems to enforce the new laws.

A key element of the World Bank's new anticorruption strategy is institutional reform. The Bank works with governments to control corruption through legal, judicial, and regulatory reform, and encourages training programs for journalists to "strengthen the ability of the press to scrutinize all fields of public administration."

Tangible efforts worldwide

In Asia and South America, national campaigns to curb corruption are gaining ground. A six-month anticorruption campaign in South Korea has resulted in the arrests of 961 people and the dismissal of two Cabinet ministers. On Oct. 26, former South Korean Defense Minister Lee Yang-ho and three businessmen were arrested in a bribery scandal. Mr. Lee admitted to accepting $182,500 bribe from Daewoo Heavy Industries Company. on a contract to build combat helicopters.

In August, Argentina launched an anticorruption drive that included an overhaul of the judicial system. More than 50 government officials are under investigation for bribe-taking in Nicaragua. Mexican investigators have identified at least $100 million in overseas accounts belonging to family members of former Mexican President Carlos Salinas de Gortari, believed to be related to illegal payoffs. Mr. Salinas's bid to head the newly formed World Trade Organization in 1995 was derailed over corruption allegations.

Anticorruption activists insist that a similar house-cleaning is needed in Europe. On Oct. 1, seven of Europe's top anticorruption judges called for sweeping judicial reforms in Europe, including a requirement to lift banking secrecy when another country asks for judicial assistance.

"There is indifference, even hostility among European politicians to improve the functioning of our judicial systems," says Bernard Bertossa, the public prosecutor of Geneva, in an interview. His decision in 1990 to release the names on numbered Swiss bank accounts provided key evidence in groundbreaking corruption probes in Italy, Belgium, and France.

Government interference in France

"Europeans talk about the free circulation of goods, labor, and capital, but the free circulation of judicial information has never even been envisioned," he adds. "There can be no boundaries in the fight against corruption."

In some cases, delays in obtaining judicial information can take years. France's crusading magistrates had been developing close ties with their counterparts in Geneva, when French Justice Minister Jacques Toubon sent a letter to Mr. Bertossa in 1991 insisting that requests for judicial information pass through diplomatic channels.

In 1989, a request for assistance in an investigation of a prominent French Socialist politician was held up in the French foreign ministry for more than a year, before being passed along to Geneva. During such a delay, key information can disappear, investigators say.

"The French government clearly wants judicial cooperation to function as badly as possible," says Bertossa. "I have been trying to do everything possible to ensure that information is passed along quickly."

French magistrates openly criticized conservative French government politicians this month for obstructing their investigations.

"The French judiciary is one of the least independent in Europe - weak prosecutors are under the control of the Ministry of Justice. As a result, many cases are slowed down or blocked altogether," says Yves Meny, director of the Florence-based Robert Schuman Center and an international expert on corruption. "As a result, governments have been very selective in which cases they have allowed to be prosecuted. It's an old French tradition that was weakened for a few years, but is now back in force."

"Corruption is as international as capital flows, facilitated by the number of tax havens," he adds. "Western states haven't taken serious measures to fight against them because politicians have used these networks for their own political finances, and at the same time cover much more serious crimes, such as mafia and drug money laundering. The public is increasingly scandalized by these scandals and the refusal of politicians to take them seriously."

Italy's Clean Hands campaign, which has implicated more than 3,000 businessmen and politicians since its start in 1992, has also run into a political backlash. This month, the former Milan prosecutor who launched these investigations, Antonio Di Pietro, quit his job as public works minister after reports that he will be investigated for abuse of office. Chief Milan prosecutor Francesco Saverio Borrelli, who also faces an investigation for abuse of office, told the press that the "general climate" in Italy is no longer as favorable to anticorruption efforts.

"The challenge is to keep up momentum in the fight against corruption," says the ICC's Heimann. "The 1977 effort that started in the US never really got off the ground internationally. By the early '80s, interest had disappeared. But now, all kinds of civic groups are paying attention to the issue. The biggest hurdle such groups have to overcome is the reaction of total cynicism that says, 'What can you do about something that has existed since the beginning of time?' "

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