Why Concerned Business Leaders Have a Stake in Each Nation’s Ability to Fight Corruption.
By some estimates, over US $1 Trillion is paid in bribes in both developed and developing nations every year. Most of these corrupt payments burden commercial and development activity and thereby materially increase costs. The impact of bribes often results in the delivery of inferior and adulterated products or sub-standard services to those in critical need, and bribery undermines much of the program and financial assistance delivered as part of development efforts by NGOs, religious charities and major donor agencies, as funds are diverted through corrupt activity at the local level. Many of these organizations have been slow to address the disastrous effects of corruption because they lack the necessary professional skill and training to confront the problem. As a result, the continuation of certain aid programs, particularly in the health sector, is placed in real jeopardy.
Much of this illegal tribute is paid in response to extortionate demands by public officials. Some is offered by commercial enterprises seeking to secure lucrative business opportunities through bribery. Whichever side initiates the transaction, corruption thrives because the amounts at stake in international commercial transactions are often enormous. Clearly, none of this is news. At least since 1498, when Vasco da Gama arrived in India seeking trade concessions and bearing gifts, international commerce has featured payments to local officials to gain an edge on the competition.
What is new are two converging developments. First, international awareness concerning the economic and social damage wrought by corruption continues to grow, especially in developing countries, as manifested recently when mass anti-corruption demonstrations occurred in India. Second, more governments are embracing the rapidly developing anticorruption laws and standards promulgated in the United Nations Convention Against Corruption (UNCAC) and similar initiatives by the Organization for Economic and Commercial Development (OECD) and regional organizations. Only a few decades ago, the United States, with its Foreign Corrupt Practices Act (FCPA), was virtually the only country that punished its own companies for bribing foreign officials to obtain business advantages2 . Now, all signatories to UNCAC have obligated themselves to enact FCPA-style laws and to designate or establish government agencies responsible for implementing the new standards. The same pertains generally for countries joining the OECD. There have been some salutary results. Countries where, until recently, bribes to foreign officials were not only tolerated, but were in some cases tax deductible, are now aggressively prosecuting such practices as evidenced by the massive case brought by Germany against its own Siemens Corporation. Great Britain has gone even further by enacting a new law against corrupting foreign officials that is in some ways stricter and more far-reaching than the FCPA.
What has seemingly gone unnoticed is the fact that for the most part all prosecution and compliance efforts undertaken around the world have focused on the supply side of corruption, i.e. those persons and entities who offer and/or pay bribes to obtain or retain business. Enforcement authorities routinely crow about the number of companies and individuals pursued and prosecuted and the amount of fines collected. In 2010 the United States Department of Justice announced that it had collected over $1 Billion in FCPA penalties. The Multilateral Development Banks have also focused their enforcement efforts on the business community rather than public officials who demand and extort kickbacks.
It is absolutely clear that the present enforcement climate has encouraged the growth of a compliance industry that seeks to minimize risks by implementing programs within business organizations for the prevention and detection of unlawful conduct and the sanctioning of corrupt employees. Government policies that reward genuine compliance initiatives, such as by making them a defense against criminal liability or a mitigation of punishment, have aided this process.
But is there a comparable enforcement initiative aimed at the demand side of corruption: the public officials who literally extort bribes at every level of commercial activity? Is it appropriate for companies seeking to do business around the world to demand a level playing field? Is it fair to pursue only those on the supply side of the equation? Admittedly, for a host of reasons, it is easier to attack the supply side, suggesting that these enforcement efforts be curtailed. But this battle cannot be fought with a singular strategy that targets only business entities and their officers and employees. Such a strategy will never achieve a level, international playing field for two obvious reasons. First, regardless of how many business organizations are deterred from committing corrupt activity because of the threat of prosecution, countless others, not subject to similar legal restraints, are primed and ready to step in and secure the business the old fashioned way. Second, in many countries corrupt public officials are allowed to operate with virtual impunity because local law enforcement officers are woefully under-trained and underfunded.
It is indisputable that a great deal of money and energy has been donated by the world community in an attempt to improve conditions that arguably sustain the ability of officials to demand bribes. Thus many millions of dollars have been used to underwrite institution building, judicial and electoral reform and to modernize criminal codes. It is hard to fault these efforts, but the collective results have at best only forced the demand side to be more cautious and clever. In my view, a much better, more practical and cost-effective way forward is to devote substantial resources to train local law enforcement units in many countries so that they acquire the skills necessary to detect, prove, and prosecute fraud and corruption at the project level. No country can begin to prevent and deter corruption unless its law enforcement personnel are sufficiently trained and prepared for the task and have the ability to prosecute dishonest officials. As that capacity increases, it will generate a growing confidence on the part of local governments and politicians and will help to instill the courage and resolve necessary to curtail the incentive to extort the business and development communities for bribes.
Whether corporations and organizations are engaged in commercial activity or the delivery of humanitarian and development aid throughout the world, they have an immense stake in leveling the current playing field, which is tilted in favor of corrupt officials who extort bribes and commercial enterprises willing to pay them. One way to level the playing field is to promote and contribute to the cost of effective training so that indigenous law enforcement personnel can capably investigate and pursue officials and political figures at all levels of government who impose corrupt barriers to doing business.
2In recent years the US DOJ has used the FCPA to pursue aggressively foreign companies as well if the subject transaction has the requisite connections to the US.
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