Cracking Down on Corruption

Pay a bribe, take a tax write off.
That has long been the rule in Germany and other industrialized countries. These nations have not only tolerated bribery of overseas government officials, they have effectively encouraged bribery through tax policies that treat bribes like any other business expense.
Now a new, just-finalized treaty among the rich countries is set to impose a modicum of ethics and sanity on international business practices. The new Anti-Bribery Convention, agreed to by members of the Organization of Economic Cooperation and Development, a grouping of the world's rich nations, requires countries to criminalize bribery of foreign public officials.
The treaty should make a real dent in corruption in developing countries and the countries of the former Eastern Bloc. As Dr. Peter Eigen, chair of Transparency International, an advocacy group that monitors worldwide corruption, notes, a large share of the corruption in developing countries "is the explicit product of multinational corporations, headquartered in leading industrialized countries, using massive bribery and kick-backs to buy contracts in the developing countries and the countries in transition."
Moreover, the treaty among rich nations follows initiatives among developing countries to crack down on corruption. Last year, the Organization of American States -- which includes the nations of North and South America -- adopted a Convention Against Corruption.
The anti-corruption fight is much more than a do-gooder effort to promote puritanical ethical standards. Corruption exacts a very high toll, especially in the Third World and in the former Eastern Bloc, where resources are tight and the need for governmental services like education and health-care provision are extreme:

• Bribery-induced waste of government resources on boondoggles diverts money from useful government spending on schoolbooks, health clinics, clean water, etc. In Guatemala, for example, the $1.2 billion Chixoy Dam was beset by corruption. It was more than five times overbudget, had to be shut for repairs five months after beginning operations in 1983 and has never worked properly since. The World Bank, which supported the project, acknowledges that "with hindsight the Chixoy Dam has proved to be an unwise and uneconomic disaster." Meanwhile, according to the United Nations, more than one-third of Guatemalans go without access to clean water.

• Corruption impedes economic efficiency. A recent Harvard University study found that increasing the corruption level from the rate in Singapore to that of Mexico is equivalent to adding a 20 percent tax on transactions -- with none of the proceeds going into public coffers.

• Corruption undermines democracy. In Indonesia, regularly rated one of the most corrupt nations on the planet, President Suharto has extracted bribes and payoffs from foreign investors to enrich his family and cronies. With their newfound wealth, the Suharto clique is now well entrenched as a political, social and economic power elite that will burden Indonesia long after Suharto leaves office.

The anti-corruption campaign is unusual, because it has been underwritten by big corporations in the United States. GE, IBM and Westinghouse are among the leading advocates of an international anti-corruption treaty.
Why have the U.S. companies rallied to the cause? Because the U.S. Foreign Corrupt Practices Act imposes restrictions on American companies' ability to bribe foreign officials. Now the American companies want to create a level playing field, in which they are not disadvantaged vis-a-vis European and Japanese competitors. This is a rare case that shows how unilateral restrictions on U.S. companies can be effective, not only at curbing U.S. corporate abuses overseas, but at turning American multinational corporations into advocates of enacting those restrictions into international law.
Enforcing and implementing the bribery treaty will be complicated and difficult. Determining the difference between a "bribe" and a "commission" paid to a friend of a high government official can be tricky. But in an era where cynicism rightfully runs rampant over issues of money and politics, the international treaty is a welcome sign that concerted action can work to clean up corruption.