Corruption

 see also transparency

Be careful:

Note that it is illegal for US based firms to bribe any foreign official.   If your working overseas as a US citizen, and you pay off a foreign official, you can be tried for a crime back at home.   This is according to the "foreign corrupt practices act"

Although I have been involved in international business for many years, I never knew that American law made it a crime for an American to engage in corruption overseas.  I didn’t realize that the laws of the origin country (the USA, in this case) actually traveled with the business person overseas.  Each and every international business manager should be required to read about the FCPA before being allowed to conduct business internationally.  I am happy that I had the chance!

complicated decisions:  morality vs practicality

the issues of corruption were much more complicated than I thought and that there needed to be more than just abstract moral guidelines to help steer the international businessperson on foreign assignment.  

Upon inspection, it is clear that “the ethical implications of corruption are important, but do not provide a complete guide to the manager”.  This is very true.   The moral objections to corruption are not enough to lead the international business person through the “grey” areas when efficiency and potential profits comes in conflict with ethical and moral judgments.

One clear method that US citizens can follow to help steer them through these tough decisions is provided by the Foreign Corrupt Practices Act (FCPA).

It is my opinion that the FCPA helps provide the necessary link between moral standards and practical applications.  It provides clarity in the decision making process of the international business person.  If, for example, the company knows that they may be fined $2 million for each corruption offense (or that an individual could go to jail and face $100,000 in fines), they might think twice before committing the offense.   From a purely financial point of view (not considering the moral objections) a firm could then do a cost analysis comparing the expected benefit of corruption with the potential penalty of getting caught.  Most corporate lawyers in the US would likely advise their managers to be extra careful and to avoid any potential investigations by the US government.

Cost of corruption worldwide:

Its shocking that  “more than $80 billion is spent annually to bribe public officials”.  Reading numbers like that, it is clear to see why officials want to put a stop to corruption. 

But, then....

Cost to companies who follow the law

Ever since the FCPA law went into effect, US companies have “lost at least 100's of contracts, worth billions of dollars because of bribery”.    The numbers on each side are so astronomical (for and against corruption) that it makes sense for the government to come up with clearly written rules such as the FCPA, which can serve as a practical guideline for the American businesses community.

A call for international cooperation, standards

But are European companies allowed to "greese the wheels" in developing nations?  If so, does that put US based companies at a disadvantage when competing in countries where "gifts" are expected, customary, and culturally ok?  It is clear to see why US companies would have a financial incentive to promote worldwide standards in fighting corruption worldwide (they need to get their international competitors to follow the same rules!)

Bribery

distorts national economies, particularly those of developing countries, by diverting scarce resources; undermines the creation and legitimacy of democratically accountable institutions; and unfairly disadvantages companies which, because of legal constraints or corporate practice, refuse to pay bribes. While anti-bribery initiatives are underway in the Organization for Economic Co-operation and Development (OECD), the Organizations of American States (OAS) and international financial institutions, the challenge is to secure full implementation of these core initiatives and devise an action place for expanding these initiatives.

The U.S. State Department is playing a leading role in a broad interagency effort to eliminate bribery in international business transactions. Most countries have laws against bribery of their own officials, but only a few, including the U.S., have laws prohibiting its nationals and corporations from bribing foreign officials. The focus of U.S. efforts has been the OECD, which joins together our major economic partners and competitors.

The State Department's efforts have not only been in the OECD. In March 1996 the OAS completed the Inter-American Convention Against Corruption (signed by the U.S. on June 2, 1996) which criminalizes the bribery of foreign officials. The United States has also proposed, and obtained support for, an initiative at the Singapore World Trade Organization Ministerial for an interim arrangement to increase transparency, openness and due process in government procurement. At the July 1996 UN Economic and Social Council session the U.S. proposed a draft Declaration on Corruption and Bribery in International Business Transactions which condemns these activities and urges members to take specific measures to combat these practices. We are also working with multilateral development banks on tightening their procurement procedures and with developing countries in good governance programs to have them enforce their existing laws against government officials taking bribes.

Transparency International

http://www.transparency.org/  Ranks countries based on level of corruption in their annual CPI index.

Click here to download the worldmap as PDF

Control of Corruption

Control of corruption is one of six governance indicators measured by the World Bank Policy Research Working Paper Series. It is a measure the exercise of public power for illegitimate means, or corruption. For this measure, the presence of corruption can be viewed as an expression of the lack of respect afforded to the laws and established norms of a given nation. EST, or point estimate, is measured on a scale of -2.5 to 2.5, with the higher scores indicating to better governance in the countries observed.

Note: Individual country ratings can exceed the normal scale when their estimates of governance are either extremely high or extremely low.

Source: This material was derived from the World Bank and reflects the latest available data at the time of publication.

Recommended Further Reading: