The end of corruption?

By Michael R. Czinkota

(December 15, Washington, Sri Lanka Guardian) I recently attended a breakfast meeting with U.S. Secretary of Commerce Gary Locke and Angel Gurria, Secretary General of the Organization for Economic Co-operation and Development. The meeting was sponsored by Transparency International and focused on the need to continue reducing global corruption.

Several thoughts stand out:

Globally, corruption is estimated to comprise between five and twenty percent of contract amounts. There are two major kinds of payments in the corruption context: One consists of paying a foreign government (official) to do something they should not be doing (letting a contract on special terms….). The second is to pay someone to do something they are supposed to do (facilitating payments). It’s the first type of payment that really matters in terms of distortion of markets and economic benefits. This is not a victimless crime. Such corruption causes reduction of competition, lessening of quality, increases in prices and the deprivation of those who lose out on goods, services or funding. Poor countries suffer the most from bribery schemes, because their citizens and companies have few if any alternatives. That is what makes rules against corruption so important. They help equalize the playing field and let all capable players participate.

There remains much work to be done, but over the last ten years the extent of corruption has been reduced on a global level. The United States looked unrealistic, and perhaps even eccentric when the U.S. Congress passed the Foreign Corrupt Practices Act (FCPA) in 1977, making it illegal for publicly held companies to bribe foreign officials. Many U.S. firms complained about this law, arguing that in many countries the payment of bribes was commonplace and tax deductible. They also claimed that the law hindered their efforts to compete internationally against companies from countries that had no such anti bribery laws. Research at the time supported this claim by indicating that in the years after the anti bribery legislation was enacted, U.S. business activity declined precipitously in those countries in which government officials routinely received bribes.

Since then, the issue of bribery has taken on new momentum. 38 countries, (eight more than its membership of 30 nations) are now subscribing to the OECD rules which prohibit the bribery of public officials, among them South Korea, Japan, Mexico, South Africa and Argentina. Large companies such as Siemens have been taken to court and punished for paying bribes. Increasingly, companies state that the anti bribery drive now gives them a clear rationale to say “no” when bribes are requested.

The progress is good. Several questions remain though: Should rules across borders be the same, particularly when it comes to the allocation of expenses and the treatment of family members, or should there be an acknowledged role for cultural differences? Current estimates of bribery levels range between five and twenty percent of international contracts. What is a realistic level of how low we can expect to drive this pernicious waste. Should we develop a time table to drive down corruption even further – either in absolute figures (down from the annual $1 trillion that Transparency International estimates) or down to, say, less than three percent of contract value? What should the punishment be for those who continue to engage in bribery? Should one just drive the companies and politicians who violate the public trust out of business? Wouldn’t such steps be unfair to most of the employees of these firms who had no inkling of illegal activities? Should there be a statute of limitations for prosecution or should firms and individuals be forever exposed to the consequences of wrongful behavior in the past? Who should be given any disgorgement of ill gotten proceeds: The party whose money was misappropriated or the one that did not receive the benefits to which it was entitled?

(Michael Czinkota researches international marketing issues at Georgetown University and the University of Birmingham in the U.K. He served in trade policy positions in the Bush and Reagan Administrations. He can be reached at czinkotm@georgetown.edu
and his new blog site is open: michaelczinkota.blogspot.com )

-Sri Lanka Guardian