European Affairs

When a recommendation on bribery was introduced at the Organization for Economic Coo-peration and Development in 1994, many members objected that controlling bribery of foreign officials would infringe on sovereignty.

Many industrial countries rejected the anti-corruption movement as an American corporate initiative motivated by concerns about competitive disadvantage, while developing nations resented any implication that the issue of corruption was a phenomenon solely of the developing world. Some objected to what they viewed as the imposition of "Western" values.

Only a few years later, the picture is quite different. In addition to the OECD Convention prohibiting bribery of foreign public officials and the recommendation to end tax deductions for bribes, the following initiatives of particular interest to the European Union and United States have also been concluded:

  • The Council of Europe has adopted Criminal and Civil Law Conventions on Corruption as well as twenty "Guiding Principles" for the fight against corruption, with a permanent commission to monitor implementation.

The Criminal Law Conven-tion covers those who take bribes as well as those who offer them, private to private bribery, and bribery of public officials. The Civil Law Convention provides for civil remedies for damage resulting from corruption, including monetary compensation from governments and non-governmental actors, whistle-blower protection, and accounting and auditing requirements.

While these conventions are broader in reach than the OECD Convention, they are often seen as having more potential loopholes because they permit numerous reservations.

  • The Organization for Secu-rity and Cooperation in Europe (OSCE), comprising 54 countries from Vancouver to Vladivostok, has agreed to an anti-corruption initiative, which will be fleshed out during the course of 2000. It is expected to include specific anti-corruption commitments subject to the OSCE's mutual review process. The main aim will be to oblige OSCE members, including Russia, to conform to existing anti-corruption agreements, although it is too early to judge how effective this will be.
  • The Stability Pact for Southeastern Europe, launched by the EU, the United States and other countries and international institutions last summer, includes an Anti-Corruption Initiative. It covers government procurement reform, anti-corruption diagnostic surveys, streamlining the bureaucracy, and promoting an independent media. While this initiative includes a declaration of agreed principles and an action plan, its precise scope is not yet clear.

Beyond these promising initiatives, the leaders of the World Bank and the International Monetary Fund are now wholly committed to making good governance and the fight against corruption a central element of their lending and country assistance programs.

This progress reflects a profound shift in attitude within governments, international institutions, and the private sector. What happened in just a short time frame is remarkable. It can also be attributed to the impact of the globalization of the financial markets and of communications in the following ways:

  • Coverage of corruption scandals in Indonesia, Italy, Colombia, Korea, Nigeria, Germany and Russia, among others, is broadcast around the world, raising public awareness that nobody escapes the scourge of corruption. It is a serious issue in the industrialized world as well as in the developing and emerging economies.
  • With the Internet linking the world in "twitch-time," public officials and multinationals have learned that the damage of a bribery scandal to their reputation can be greater than the benefits of a bribe.
  • Shrinking public sector resources have led donor governments to increase the pressure on international financing agencies to direct limited resources where they will be used most productively and create environments that attract private capital.
  • The Asian financial crisis demonstrated that such a hospitable environment requires transparency and governance and that corruption and cronyism undermine investor confidence and cause capital flight.
  • As with the landmine network, anti-corruption advocates are joining forces across borders to promote common governance principles and best practices. Grass roots national chapters of Transparency International in over 70 countries are promoting reform at the local and multilateral level and monitoring implementation.

Those who ignore this groundswell and seek to preserve the status quo do so at their financial and political peril. Tens of thousands of people recently demonstrated in the streets of the Czech Republic to demand either greater accountability or the ouster of their leaders.

They put a human face on the issue. This was also the case when 1,500 delegates from 134 countries gathered at the 9th International Anti-Corruption Con-ference in Durban, South Africa, sharing stories of corruption and the damage that it causes. On the opening panel, a representative of a Kenyan NGO followed an eminent roster of public and private sector speakers. She put a human face on corruption, describing the misery that it causes in her country. She called the proceeds of corruption "blood money" because it has left children dying in hospitals with no medicine, infrastructure which has collapsed, and water unfit for humans to drink. She placed the responsibility as much on those who pay the bribes as the corrupt elites who demand or receive them.

Her words remind us that the transatlantic discussions of bribery have focused too much on the cost to business and too little on the human cost. And, they force us to reconsider the impact of our actions and the urgent need for serious steps, not just rhetoric, to change business practices.

So, we should be proud of concluding the OECD Anti-Bribery Convention, for its provisions apply to practically all major corporations, simultaneously bringing them under one set of rules. There is the potential to affect a preponderant share of international trade.

However, if we look at the track record on implementation, there is cause for concern. Many signatories have not yet ratified. Of the G-7 nations, only three, Canada, Germany, and the United States, can be considered fully in compliance; Italy has failed to ratify; Japan and Britain have inadequate legislation; and in France, the situation is still unclear. Among the world's top 10 exporters (the G-7 plus Korea, the Netherlands, Belgium, and Luxembourg), which account for over 80 percent of total OECD exports, the quality of most implementing legislation is problematic.

Britain, for example, takes the position that existing laws are sufficient to comply fully with the Convention based on the 1906 Prevention of Corruption Act. This antiquated and outmoded legislation was never intended to reach bribery of foreign public officials and would require tortuous interpretations to do so.

Transparency International-UK has submitted an extensive analysis of the legislation to the OECD, finding it inadequate in jurisdiction, enforcement, accounting, and other important areas.

In France, implementing legislation has recently been reviewed, but it is uncertain whether the courts will insist on "grandfathering" all future bribes paid pursuant to pre-existing contracts and preserve tax deductions for them as well. A recent editorial in Le Monde noted that "French companies continue to consider bribes as necessary to win a contract."

Trying to protect business by condoning future illegal acts is in contravention of the requirements of the Convention. It also ignores the damage bribery causes for those struggling against corrupt leaders in the recipient countries.

It is clear that the Conven-tion will only be effective when all members have consistent and effective legislation. To achieve this objective requires political will and political pressure from interested groups on both sides of the Atlantic.

It is also clear that progress will depend on the effectiveness of the OECD monitoring process. The overriding objective of the monitoring program must be to forestall the development of major differences in how foreign bribery is prohibited.

Any concern about inconsistent approaches would become a deterrent to effective action, because governments may be reluctant to impose stricter prohibitions on their own companies than those imposed on their competitors. The threat is that this will lead to the lowest common denominator approach.

The OECD Working Group on Bribery has so far provided clear assurance that all parties will be held to the highest standards. Its critical analysis of the members' implementing legislation has already been an important factor in moving the process forward.

In the next phase, Working Group experts will make on-site visits to assess enforcement. This phase will require even greater human and financial resources than phase one and funding has already been problematic.

Moreover, if we look at the work of the international Financial Action Task Force on money-laundering, on which the OECD anti-bribery process is modeled, we see that it has taken nine years of monitoring enforcement of money-laundering laws in 26 countries to have a practical impact. The bribery process will also take many years. Sustained attention and adequate financial resources over this period will be needed if the Working Group is to successfully complete its task.

I have focused on the OECD Convention because it is an important means for the industrialized countries to begin to address their contribution to corruption. Without such action from the "supply side" (the bribe-givers), we have little credibility when we call for action on the "demand side" (the bribe-takers).

We must address those aspects for which we have direct responsibility and over which we exercise control. In addition to securing effective legislation prohibiting bribery of foreign public officials and tax deductions for those bribes, I would urge the following actions:

  • Completing work on the Convention's unresolved issues, including solicitation, bribes to political parties and party officials, payments through subsidiaries, and offshore money centers.
  • Complying with Article 8 by prohibiting off-book accounts and providing effective penalties for falsification of books and records.
  • Ending export credits for deals secured with bribes.
  • Requiring evidence of good governance in exchange for multilateral lending and debt forgiveness.
  • Cooperating in the recovery of illicit assets.
  • Reviving the effort to conclude an Agreement on Transparen-cy in Public Procurement in the World Trade Organization.

Supporting greater institutional transparency and public participation in our own governments and in the multilateral institutions in which they participate, including the OECD and WTO.

In addition to these governmental actions, the private sector has a key role to play. First, it should be an advocate of governmental reform, making it clear to legislators that business no longer seeks protection for bribery. Second, it should reinforce governmental action with private sector compliance. The criminal law system will work effectively if a substantial percentage of the private sector complies voluntarily.

In 1996, the International Chamber of Commerce adopted voluntary Rules of Conduct for companies, and this year it published A Corporate Practices Manual that provides details of best practices for compliance programs, the use of agents, and accounting and auditing rules. Together, they are a roadmap for corporate action.

Many corporate leaders recognize the long-term benefits of corporate integrity. Speaking in Durban on the "Return on Integrity," Robert Wilson, chairman of Rio Tinto, noted that business is an integral part of society. Its activities affect the community for good or ill, particularly in the developing countries where five-sixths of the investment is from the private sector and where the impact of corruption is most damaging.

He emphasized the need for good corporate integrity programs and concluded that, where corruption is widespread and there seems no alternative to extortion, some opportunities will be lost when payments are not made. Nonetheless, he found that this in the long run would prove less costly than making the payment; for one payment is inevitably followed by further demands, making performance unpredictable.

Much of the progress we have made would not have been possible without the collective contribution of many people and organizations on both sides of the Atlantic. With continued, intensive transatlantic cooperation we will maintain momentum toward meaningful reform.


This article was published in European Affairs: Volume number I, Issue number II in the Spring of 2000.