Companies, Corruption and Competition

By Bray, John | The World Today, August/September 1998 | Go to article overview

Companies, Corruption and Competition


Bray, John, The World Today


In the year since the Asian economic crisis began with trouble in Thailand, the world has become familiar with the excesses of crony capitalism and corruption. Changing such bad practices is now high on the agenda of international organisations. International business welcomes this but wants everyone to play by the same rules.

THE FINANCIAL CRISES in the Asia-Pacific have added fuel to a long-running debate about the responsibilities and influence of transnational companies. To what extent do they contribute to the corruption of foreign governments? Or are they more likely to be innocent victims? And who is responsible for defining the rules?

Several international institutions are seeking to curb the impact of transnational corruption: these range from the World Bank to the International Monetary Fund (IMF) and - most importantly - the Organisation for Economic Co-operation and Development (OECD). In December last year 28 OECD countries and five other states signed a convention promising to criminalise the bribery of foreign officials in international business transactions. However, the impact of the OECD initiative remains uncertain. This article draws on the lessons of the past especially in the US - to offer a commercial perspective on the corruption debate.

SLEAZE IN THE SEVENTIES

Until recently, the US was the only government that actively investigated and prosecuted its own companies for paying bribes to foreign officials. This policy was the outcome of a series of congressional investigations in the early 1970s which focused on the Lockheed Aircraft Corporation and other major companies.

In 1975 Lockheed acknowledged that it had paid $22m to foreign officials and foreign political organisations over the previous five years in the hope of securing commercial contracts. However, it defended its actions on the grounds that: `Such payments are consistent with practices engaged in by numerous other companies abroad, including many of Lockheed's competitors, and are in keeping with business practices in many foreign countries.' l

These two defences - the pressures of competition and supposedly normal business practice in other countries - are still central to the debate.

The Lockheed case triggered a series of scandals in Japan, Italy and the Netherlands, and was the prime cause of the Foreign Corrupt Practices Act (FCPA) which became US law in 1977 - the first year of the Carter administration.

The FCPA criminalises payments to foreign officials - for example to secure commercial contracts, and imposes a strict set of audited internal controls on all US-based companies, as well as foreign firms that issue registered US securities.

The act has three exclusions: payments which are `lawful under the written laws and regulations of the foreign official's country'; facilitation payments (`speed money' paid to accelerate legitimate bureaucratic processes); and bona fide expenditure related to the promotion of a good or service.

Individuals can be fined up to $250,000 for violating the act, and face protracted jail sentences. Companies can be fined up to twice the net proceeds of their original offence. Taken together, the provisions of the FCPA present a powerful deterrent.

There have been fewer than 30 prosecutions during the two decades since the FCPA came into force. This is partly because of the difficulty of gathering evidence in foreign jurisdictions whose officials may not co-operate.

BEST TO WALK AWAY

However, the prime impact of the act lies in prevention rather than prosecution. All major US companies now have extensive compliance programmes to make sure that their employees understand its implications. There are strong incentives to do so: US courts may impose significantly lower penalties where companies have effective programmes but have been betrayed by rogue individuals.

Meanwhile, in the US, business ethics has burgeoned as a profession. …

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