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After years of being tolerated with a mixture of apathy, cynicism, and denial, corruption is becoming a target of serious international action. Where once they looked the other way, the World Bank, International Monetary Fund (IMF), and other international organizations are now seeking to curb bribery and other corrupt practices. These expanding efforts add up to a reform movement whose most significant achievement to date is the Convention on Combating Bribery of Foreign Public Officials of the Organization for Economic Cooperation and Development (OECD).
The convention, signed in 1997 and now undergoing ratification by the legislatures of 34 nations, will end the competitively damaging isolation of the United States, which banned bribing foreign public officials in 1977. Bribery scandals in half a dozen countries led the United States to pass the Foreign Corrupt Practices Act in hopes that other countries would follow suit. But the act was derided as misguided American moralism, and foreign competitors remained free to use bribes to win commercial orders. Many countries, including Germany and France, even allowed their deduction as business expenses. The United States also promoted a U. N. treaty to ban bribery, but that effort fizzled. The developing world saw the proposed treaty merely as an opportunity to bash multinational companies.
Conventional wisdom saw corruption as a chronic characteristic of human behavior that, in any event, was not of debilitating proportions in the developed world. Although admittedly widespread in the Third World, endemic corruption was not seen as impeding rapid growth in countries such as Indonesia, South Korea, Malaysia, and Thailand. Some economists even saw bribery as grease for the wheels of progress in overregulated societies.
During the last half-dozen years, however, there has been a dramatic change in the tolerance of corruption. A wave of bribery scandals hit all parts of the world. In Asia, the downfall of Indonesian President Suharto followed swelling protests against his refusal to undertake reforms, especially regarding his family's ill-gotten billions from state-connected enterprises. Corruption charges played a critical role in the defeat of Prime Ministers P. V. Narasimha Rao of India and Benazir Bhutto of Pakistan. In South Korea, former Presidents Roh Tae Woo and Chun Doo Hwan were jailed following disclosures that they had received enormous bribes from Korean companies. In Japan, numerous top-level government and business leaders have resigned in the wake of corruption scandals. In Latin America, bribery charges resulted in the impeachments of Presidents Fernando Collor de Mello of Brazil and Carlos Andres Perez of Venezuela, as well as the resignation of President Abdala Bucaram of Ecuador. In Mexico, President Carlos Salinas de Gortari was tarnished by his brother's illicit accumulation of huge sums. President Ernesto Samper of Colombia avoided impeachment over his acceptance of money from the Cali drug cartel, but his political authority was eroded and his party lost the recent presidential election. In Italy, the bribery charges brought by Milanese magistrates have overthrown the entire leadership that ruled Italy for more than four decades. The defeat of Prime Minister Felipe Gonzalez of Spain was partly due to bribery scandals involving members of his cabinet. Bribery charges also caused the resignation of NATO Secretary-General Willy Claes, a former Belgian defense minister, and of Czech Prime Minister Vaclav Klaus. Last year's overthrow of Zairean President Mobutu Sese Seko was fueled by popular resentment of his multibillion-dollar corruption. In China, a member of the Politburo resigned in a massive corruption scandal. The foregoing, while far from complete, demonstrates a worldwide phenomenon.
The growing intolerance of corruption stems from the convergence of several political and economic pressures. The post-Cold War era has brought an opening up of governmental processes, freer news coverage, and increased independence of prosecutors and judges. Corruption is harder to hide, as the wave of bribery scandals involving high-level officials in Europe, Asia, and South America demonstrates. On the economic front, impediments to investment and other dysfunctions due to corruption are vividly displayed in Russia, Africa, and Eastern Europe. With the growth of the global economy, international business leaders are increasingly recognizing that common, morally defensible rules are essential.
Most important, people have recognized that corruption is a major obstacle to democratic transitions, market economies, and development. Citizens are using protests, elections, and agencies of civil society to press for reform. One striking example of civil society at work is the growth of Transparency International, an anticorruption organization that in five years has established chapters in over 70 countries and is working closely with the World Bank and OECD. Transparency International publishes an annual index rating corruption country by country and offers a range of anticorruption programs covering such subjects as procurement reform, conflict of interest rules, and freedom of information laws. The organization has influenced public perceptions and marshaled support for the OECD anticorruption convention.
PROVIDING A FRAMEWORK
The OECD is the ideal forum for tackling the supply side of international corruption because its member states are the home bases of nearly all important international companies. The antigraft convention provides a solid framework for an international system. It prohibits bribery of foreign legislative, administrative, and judicial officials, whether appointed or elected. Officials of government-controlled corporations and international organizations are covered. Bribery is prohibited not only in procuring orders but also in regulatory proceedings such as environmental permits, tax and customs matters, and judicial proceedings. The convention requires strong penalties, the establishment of accounting and auditing rules to prevent off-the-books accounts, and mutual legal assistance, including extradition.
Like any agreement emerging from multiparty negotiations, the convention has shortcomings. One is its failure to prohibit improper payments to foreign political parties, party officials, and candidates. The OECD's Anti-Bribery Working Group is reexamining the issue for additional action in 1999. Improvements in this and other areas can be made later and should not be permitted to delay ratification of the convention by national legislatures. Once the convention is in place, Germany and France have signaled that they will end tax deductibility of foreign bribes, a step already taken by Denmark, Norway, Poland, and the Netherlands. For its part, the OECD will seek adherence to the convention by other non-OECD members beyond the five among the current signatories.
Enough countries will probably ratify the convention to let it enter into force by the end of the year. While that will be a great accomplishment, two additional steps must be taken before the convention will have a practical impact. Implementing legislation must be enacted to turn the provisions of the convention into binding national law, and enforcement programs must be organized.
Indispensable to the effectiveness of the convention is a monitoring program to assure consistent implementation by national governments, a challenging task. National legal systems differ, and the level of political support for curbing foreign bribery varies from country to country. The overriding objective of monitoring must be to forestall inconsistent approaches to prohibiting bribery because governments will be reluctant to impose stricter prohibitions on their own companies than those applied to competitors. Preventing regulation from falling to the lowest common denominator can occur only if all parties are held to high standards. To avoid the tendency of signatories to enact minimalist legislation, a strong monitoring program should be quickly designed and put into operation.
The closest analogue to the monitoring program for the convention is the work of the Financial Action Task Force, which has earned high marks for professionalism and competence during its nine years of monitoring the enforcement of money-laundering laws by 26 countries, 24 of which are signatories to the OECD convention. The task force is based at OECD headquarters in Paris, enabling the anti bribery monitors to benefit firsthand from its experience.
The monitors would also benefit from participation by civil society and the business sector. To facilitate such participation, a transparent monitoring process is necessary. The need for transparency distinguishes antibribery monitoring from monitoring in the money-laundering field. That process, which relies on governments monitoring other governments, largely behind closed doors, can work effectively for two reasons: the officials involved have long-standing relationships, and they are dealing with government-regulated financial institutions. Actions to combat bribery, on the other hand, are more politically controversial and involve a much broader range of industries, most of which are not regulated.
A GATHERING POSSE
Until recently, the World Bank and other international financing agencies paid little heed to corruption, apparently considering it a political matter outside their purview. At the bank, this attitude began to change with the appointment of James Wolfensohn as president in 1995. His speech at that year's annual meeting included the first reference to corruption in a presidential address. At the 1996 meeting, Wolfensohn made combating bribery a top priority. He invited Transparency International to help develop the bank's anticorruption strategy. In 1997, the bank adopted a comprehensive program, including strong controls to prevent bribery on World Bank-financed projects and assistance to governments to promote reforms. Similar changes are taking place at other international financing agencies. The IMF, going beyond its traditional focus on monetary and fiscal policy, is emphasizing the need for transparency and other steps to curb corruption. The Inter-American, European, and Asian Development Banks are following the World Bank's lead in adopting stricter controls over projects they finance. And the Global Coalition for Africa has made combating corruption its most important priority for 1998.
The Inter-American Convention Against Corruption was adopted in March 1996. It has been signed by 26 countries, but ratified by only 10. Momentum behind this convention lessened as efforts to create a hemispheric free trade area stalled. Congressional renewal of the fast-track authority needed by the executive branch to negotiate trade treaties could reignite interest. Establishment by the Organization of American States of a body similar to the OECD's Anti-Bribery Working Group to provide professional support and monitor progress by western hemisphere governments would also be helpful.
The International Chamber of Commerce in Paris is playing an important role in encouraging the international business community to become active in fighting corruption. The chamber's focus is on improving corporate self-regulation programs. Strong "Rules of Conduct to Combat Extortion and Bribery," prepared by a group of lawyers, managers, and scholars from over a dozen countries, were issued in 1996. The rules deal forthrightly with such issues as payments to sales agents and other intermediaries, business entertainment and gifts, and political contributions. They cover not only bribery of public officials but bribery within the private sector as well. The chamber is preparing a manual to assist companies in complying with the rules and with the OECD convention.
The OECD convention and the increased use of corporate rules of conduct will reduce the supply side of international corruption. The demand side -- extortion and other forms of corruption by public officials -- is more difficult to target effectively. Every country has laws prohibiting its officials from taking bribes, but such laws are unlikely to be enforced when top officials are corrupt. The World Bank, IMF, Transparency International, and others are working on programs to promote greater transparency in government operations and other measures to combat demand-side abuses. By curbing foreign bribery, industrialized countries will increase the credibility in the developing world of their proposals for combating demand-side corruption.
THE ROAD AHEAD
The developments of the last five years, although remarkable, are only the start of a long, difficult effort. Although there is widespread support for action against corruption, entrenched groups oppose reforms. Corruption has powerful beneficiaries: officials in high places, companies with large resources, and a legion of influential middlemen.
Wherever corruption has become a way of life, wholesale change is necessary. Tossing out a few rotten apples will not be enough. Operating a corrupt system requires specialized skills on the part of both bribe-givers and bribe-takers. An honest system requires very different skills. New people must be brought in. New incentives and controls must be developed to reinforce integrity and punish corruption.
While no one openly defends corruption, its beneficiaries use delaying tactics to sap public and media interest and amendments to make anti bribery laws toothless and unenforceable. To overcome such strategies, perseverance and public support are essential. During the last five years, the argument that the costs of corruption are intolerable has been winning. The biggest challenge for the next five years is to assure continued public support by showing tangible results.
Prospects for success in the struggle against corruption are improving because the disclosures of the last five years demonstrate that corrupt systems are not only unjust but inherently unstable. Because bribes must be paid in secret, normal systems of checks and balances do not function. Without them, corruption spins out of control, as in Italy. Payoffs to political parties started at 5 percent of the price of government contracts, then escalated to 8, 10, and finally 15 percent. As the amounts involved shot up, the funds were no longer restricted to political parties. Instead, they went increasingly to the personal bank accounts of leading politicians. The more egregious the system, the more inevitable the ultimate explosion.
The same slippery slope occurs on the side paying the bribes. A company that decides to bribe must engage in a pattern of deception involving off-the-books transactions and secret bank accounts. The normal control system, including auditors, lawyers, and boards of directors, must be kept in the dark. The absence of accountability will lead to additional abuses. Middlemen and even company employees will pocket money ostensibly intended for government officials. As abuses expand, exposure becomes ever more likely.
Although there are no silver bullet solutions, individual reforms will interact and reinforce each other. The OECD convention, by making foreign bribery a crime, will strengthen efforts to end tax deductibility. The convention will also cause companies in OECD countries to adopt corporate compliance programs, just as U.S. companies did after the passage of the Foreign Corrupt Practices Act in 1977. Corporate self-regulation will multiply the effectiveness of government antibribery law enforcement. It will also enhance the World Bank's efforts to prevent bribery. Wider adoption of corporate compliance programs by foreign companies will make it possible for the World Bank and other international financing institutions to insist on such programs as a condition for bidding on major procurement projects.
Many factors contribute to the pressure for accountability in the post-Cold War world: the spread of investigative journalism, opposition parties anxious to expose corrupt ruling parties, more independent prosecutors and judges, whistle blower protection, the growth of the corporate governance movement, and the expansion of the global economy with increased demand for international accounting standards. These developments bolster the movement to curb corruption and enhance the prospects for achieving lasting reforms.