Volume 12 Number 1
Breakthrough in the War Against Corruption
01 February 1999
Michael Smith meets the man behind an international move to outlaw bribery
It could be hailed as a major breakthrough in the worldwide war against grand corruption in international business. Industrialized countries representing over 60 per cent of the world's export trade have ratified a convention to outlaw 'offshore' bribery, drawn up by the Organization of Economic Cooperation and Development (OECD). The convention comes into force this March.
No longer will Western businessmen, and their shadowy middlemen, armed with contracts for prestigous development projects and hidden slush funds, get away with greasing the palms of Third World government ministers and their officials.
At least that is the theory. But will the convention, first drawn up in Paris two years ago by the world's 29 richest countries and five other nations, put an end to graft, baksheesh, venality in high places, and the salting away of millions of dollars into unnamed Swiss bank accounts?
Much will depend on policing the laws passed by the major trading nations, including the USA, Germany and Japan, who have ratified the convention. There is concern, for instance, that the UK's existing laws are not effective in prosecuting offences committed abroad.
The OECD will now set in train 'peer reviews', modelled on earlier OECD agreements to monitor money laundering and drug trafficking. Typically, teams from three governments will look at the way a fourth government is implementing its new law.
Until now, America was the only nation which outlawed the bribery of foreign officials. The USA's Foreign Corrupt Practices Act was passed in 1977, during the Jimmy Carter administration, following the Lockheed Aircraft scandal in Japan. US companies which break the law are liable to fines of up to $2 million per violation and individuals up to $100,000 and imprisonment for up to five years. Not every American businessman has turned lily-white since then. But there is broad agreement that the law has affected behaviour. General Electric, for instance, paid a hefty fine, and sacked a number of its managers, after a bribes scandal over defence supplies to the Israeli airforce.
Now the USA is no longer going it alone. As well as the OECD convention, the European Union, the Council of Europe, the Organization of American States and the World Bank have all reviewed their regulatory procedures to eliminate bribery. Till now it was even tax deductible as a legitimate business expense in 11 OECD countries.
Much of the drive to get the business world and its illicit 'benefactors' to clean up their act has come from the small Berlin-based non-profit organization, Transparency International (TI), founded six years ago by a former World Bank executive, Peter Eigen. He was the bank's Resident Director in East Africa but was so appalled by the sheer wastage of resources on inappropriate development projects that he took early retirement to launch TI.
Transparency International, which now has national chapters in 60 countries, has been credited as a major influence in framing the OECD convention as well as on the culture of the World Bank where its president, James Wolfensohn, has also declared war on corruption. TI will take part in monitoring the OECD convention.
Eigen was based in Kenya from 1989-91, in charge of donor coordination for the bank. His work involved rejecting projects of little economic value or harmful to the environment and climate. Yet too often they would return 'through the back door, driven by an unholy alliance of suppliers and local decision makers who received large bribes into their Swiss bank accounts', Eigen says. Some projects would be up to 50 per cent more expensive than those 'better for the economy and better for the people'.
When the World Bank wanted to support a $40 million project to rebuild a pipeline for water-starved Mombasa, foreign firms lobbied Nairobi for a more expensive new pipeline to carry water 200 kilometres to the city. Neither project has yet been carried out.
The 'all pervasive' nature of such corruption has 'an absolutely devastating effect' on development, says Eigen, a lawyer who joined the World Bank with the ideal of 'working for the development of poor countries and for peace'. The feeling that his life's work was being destroyed and undermined by corruption 'made me furious', he says.
Prior to his Kenya post, Eigen was a division chief for the World Bank in Latin America. In those days, the bank accepted corruption 'as an unchangeable, inevitable fact of life'--the problem of its partner countries rather than the bank itself, he says. While the bank had explicit procurement procedures for goods and services, 'we washed our hands of corruption', and could only act if a court of law in the country concerned had determined wrongdoing. The bank was not able to take action, for instance, in Zaire when it knew that a high official in the Ministry of Transport had demanded bribes to falsify licence documents.
Now the bank is much more proactive in tackling 'grand corruption' or what it tersely describes as 'the abuse of public office for private gain'. It published its report, Helping countries combat corruption, in 1997 and is ready to place conditionality--once a dirty word in development circles--on aid schemes.
The problem lies not just in the developing countries, with their 'relatively fragile' political and legal systems, Eigen continues, but also in some former Soviet bloc nations, where a cowboy culture prevails and 'the legal system is still patchy'.
Each year, TI publishes its 'corruption perceptions index' of the world's potentially most corrupt nations, collated from a range of independent studies. Nigerians howled when their country headed the list a couple of years back. Now it is Cameroon. Denmark is seen as the least corrupt of the 85 nations studied. Eigen describes the index as a 'wake-up call' to political leaders to confront corruption. But he is also careful to point out that the list is only an index of perception, rather than fact, and far from the whole picture. Data on many countries is not available. And, he says, some developing countries would be seen as far less corrupt were it not for the graft encouraged by companies based in the industrialized countries.
'There are too many cases when the initiative for corruption comes from the northern middlemen,' Eigen says. 'They are well known. They sit around in the capitals and on the golf courses; they offer to get ministers' children into Oxford and Harvard. [British businessman] Tiny Rowland admitted as much.' During a court battle he said he needed £10 million a year to maintain his relationship with the first families of African countries.
TI now aims to publish a separate index to 'shine the light' on countries where bribe-paying corporations base. Germany, the UK, Japan and Scandinavia would not fare well on that list, he says. Siemens' telecommunications arm, for instance, was banned for five years from any public contracts in Singapore, after paying millions of dollars in bribes to a local utilities official.
It is far more difficult to tackle these rich countries than the bribe-takers in developing countries, Eigen asserts. He sees hope in 'a new generation of leaders in the South who have understood that corruption is destroying them'. After all, what is the use of a corrupt minister holding office for two or three years, only to be thrown out again by the voters because everybody thinks he has enriched himself through bribes? Meanwhile the poorest of the poor suffer the most from the effects of lost investment.
George Moody-Stuart, head of TI's UK chapter, believes the new convention will help Western business people who might have had a conflict of interests between their moral scruples and their 'duty' towards their companies. 'Most businessmen don't want to break the law when they know what the law is,' he says. 'They will not risk going to jail.'
TI also advocates 'integrity pacts' whereby competing companies bidding for a contract and the government concerned sign an agreement not to indulge in graft. This has worked well in Argentina, Panama and Ecuador where a petroleum refinery was rehabilitated in 1994 under bidding controlled this way. TI wants all donor bodies to introduce the concept and is helping the World Bank to do so in six African countries.
No one suggests that corruption is going to be totally eliminated. Some public employees in developing countries are so poorly paid that 'gratuities' are endemic as a means of family survival. But it is the large scale corruption, involving heads of state and government ministers, which outrages Eigen. 'These are some of the richest people in the world, and they don't even know what to do with all their wealth.'
Tackling corruption could be seen as the other side of the coin of debt remission. Eigen is sceptical about writing off the international debt of developing countries, without them accepting 'a certain rigour in terms of future indebtedness'. Without restraints on their investment programmes 'they can continue to borrow totally irresponsibly'.
A man of evident integrity himself, who says he has 'strong convictions about what is fair and good', Eigen draws particular strength from his wife, Jutta, a medical doctor who spends eight weeks each year in Third World clinics. 'She believes that one's life has to be driven by values rather attempts to make money,' he says.