Text: U.S. Efforts to Combat Foreign Corrupt Practices
The U.S. government is expending considerable effort to combat the problem of foreign corrupt practices. This article reviews the evolution of U.S. involvement in this effort, the successes to date, and future initiatives.
The U.S. government's involvement in curtailing transnational bribery began in 1977 with the enactment of the Foreign Corrupt Practices Act. As international corruption scandals flourished throughout the 80's and 90's, a growing number of business leaders and policymakers began to see that bribery threatened interests of vital importance.
First, bribery distorts markets and hinders economic development. it displaces quality, performance and suitability in global markets with graft.
Second, bribes undermine democratic accountability. Weak governments are further weakened by corruption, and emergent democracies are threatened.
Third, bribery creates a non-tariff barrier to trade that disadvantages companies that refuse to engage in the practice. Companies with legitimate business practices are therefore unfairly and unjustly penalized.
U.S. action in this area is motivated by all three interests. While we naturally regard the competitive disadvantage to U.S. companies as significant and unacceptable, bribery's effects on economic efficiency and democratic accountability for all concerned also compel us to act.
To put it in colloquial terms, our goal is not only to level the playing field for U.S. firms, but also to strengthen the rules of the game. We want international economic competition to foster economic development and to strengthen democratic institutions.
OECD INITIATIVES The United States has made efforts to address these vital interests consistently over the past twenty years. Initially, there was little support for such initiatives in either the Organization for Economic Cooperation and Development (OECD) or the United Nations, and they unfortunately languished in these bodies.
Early in this administration, however, Secretary of State Warren Christopher reviewed the state of affairs on illicit payments, and decided that the time had come to put more political muscle behind our effort in the OECD. Senior administration officials have regularly raised the issue at policy level meetings with a host of governments.
The push has begun to produce results. The United States succeeded in having the OECD approve the "Recommendation on Bribery in International Business Transactions." This proved to be a remarkable breakthrough in the battle against corruption. The 1994 Recommendation not only calls on member states to take "concrete and meaningful steps" to combat bribery, but has also set into motion various initiatives in the OECD and other fora.
In April, for example, the OECD nations agreed that the tax deductibility of bribes paid to foreign officials should be eliminated. Henceforth, the OECD stated, the incredible practice of permitting firms to actually pay bribes and then deduct the amounts from the taxes they owed to their governments should cease.
In May, OECD Ministers committed in principle to criminalize foreign commercial bribery in an effective and coordinated manner, and to consider specific proposals at the May 1997 Ministerial to accomplish this. We look forward to, and will work toward, this additional major step forward.
The OECD is also working in the areas of government procurement policies and auditing and accounting standards. This effort is intended to reinforce the principles of "best practice" in order to ensure that government policies in these areas can help to deter bribery.
These are our key objectives in the OECD between now and next spring's Ministerial:
-- to ensure the effective implementation of the tax deductibility recommendation, and;
-- to obtain a clear commitment for early national legislation by OECD members to criminalize foreign commercial bribery.
Certain OECD members insist that only a well-articulated international convention can ensure "harmonized" criminalization. Though we understand the motivation for such a convention, we also know that its negotiation would be a lengthy and uncertain endeavor. We believe the OECD can agree on reasonable guidelines to guide national legislation, and we intend to press for such an outcome by next spring.
In addition to their substantive value, these OECD actions have broader implications. First, they counter the perception that in multilateral fora the group instinct is to form a talk shop, and to avoid action. These OECD steps prove that where there is political will and strong leadership much can be accomplished. Finally, the OECD initiatives have already created tremendous momentum that will continue to spur serious work on illicit payments.
U.S. NATIONAL ACTION Our involvement and leadership in these OECD initiatives are obvious indications of our commitment to the multilateral process and our recent successes encourage us to redouble our multilateral efforts. We have taken steps to ensure that the OECD Recommendation against paying bribes is honored.
One example is the agreement by the U.S. Overseas Private Investment Corporation (OPIC) to require a project company seeking OPIC financing to certify that bribery was not used to obtain the contract. Similarly, we are considering ways of amending export advocacy guidelines to ensure that the United States is not advocating for companies that have paid bribes.
National measures like the ones I've described are useful resources at our disposal that we will not hesitate to deploy in the war on corruption. Indeed, an individual nation's responsible action is a prerequisite to make multilateral agreements do as they are intended. We will pursue a variety of national measures that foster and support multilateral efforts to combat corruption.
OTHER MULTILATERAL INITIATIVES In addition to the OECD Recommendations, the United States has successfully shepherded other multilateral initiatives.
On March 29, the Organization of American States concluded the Inter-American Convention against Corruption, which the United States signed on June 2. The Convention serves as a powerful political statement by leaders of the Hemisphere that they will no longer tolerate the corrosive effects corruption has on free markets and the democratic system.
From the U.S. perspective, the highlight of this Convention is the obligation it creates for signatories to criminalize transnational bribery of public officials. The Convention also makes transnational bribery an extraditable offense, provides mutual legal assistance in investigations of corruption, and calls for the seizure and forfeiture of illicit gains.
Another hemispheric success involves the NAFTA-created North American Development Bank (NAD). As a result of State Department and Treasury initiatives, the NAD Bank Charter requires companies to certify that they have not engaged in bribery of foreign or domestic officials in furtherance of a Bank project. They must also have active corporate policies that prohibit bribery in pursuit of corporate activity. They must also assert that they have not been convicted of bribery within five years of the certification. If the Bank discovers that a company has been convicted of bribery, it may debar that company from any future participation in a Bank funded or guaranteed project.
In the United Nations' Economic and Social Council (ECOSOC), the United States has proposed a draft Declaration on Corruption and Bribery in Transnational Business Transactions. This non-binding political resolution reflects the issue areas we have focused on in the OECD and would provide important global political support for our objectives in the OECD.
The New Transatlantic Agenda, the product of last year's U.S.-European Union (EU) Summit, urges EU members to combat illicit payments by implementing the 1994 OECD Recommendation on bribery in International Business Transactions. The private sector counterpart to the Transatlantic Agenda, the Transatlantic Business Dialogue, went one step further and called on EU nations to criminalize bribery.
One area that is ripe for change and where the United States will channel much energy in the future is government procurement. Procurement markets account for trillions of dollars in commercial transactions. The World Bank has made welcome improvements to its procurement regulations to deter the use of bribery in World Bank procurement activities. We hope to see this replicated in other regional development banks.
In the World Trade Organization (WTO), the United States has set its sights on ensuring that the international procurement process is open and transparent. The WTO Government Procurement Agreement (GPA) satisfies this standard, but it is of limited use, as only 26 countries have signed it thus far, mainly because few countries can meet its rigorous procedural requirements.
Of course, the United States will continue to press for universal accession to the GPA, but in the meantime, we have developed an alternative strategy. We will seek a mandate at the Singapore Ministerial to negotiate an interim, stand alone procurement arrangement based on transparency, due process and openness in government procurement.
The best evidence that combating overseas bribery has come of age as a policy issue is the fact that senior policy makers from around the world are clamoring to get involved in it. For those of us who have long sought substantive progress on this issue, this is an immensely satisfying development.
Illicit payments, bribery, corrupt practices: whatever the name, the practice destroys more than the principles of economic good sense. It destroys a nation's reputation as a trustworthy, dependable partner. Worse, it eats away at a people's trust and confidence in their government to act honorably in their name.
The U.S. government's involvement in curtailing transnational bribery began in 1977 with the enactment of the Foreign Corrupt Practices Act. As international corruption scandals flourished throughout the 80's and 90's, a growing number of business leaders and policymakers began to see that bribery threatened interests of vital importance.
First, bribery distorts markets and hinders economic development. it displaces quality, performance and suitability in global markets with graft.
Second, bribes undermine democratic accountability. Weak governments are further weakened by corruption, and emergent democracies are threatened.
Third, bribery creates a non-tariff barrier to trade that disadvantages companies that refuse to engage in the practice. Companies with legitimate business practices are therefore unfairly and unjustly penalized.
U.S. action in this area is motivated by all three interests. While we naturally regard the competitive disadvantage to U.S. companies as significant and unacceptable, bribery's effects on economic efficiency and democratic accountability for all concerned also compel us to act.
To put it in colloquial terms, our goal is not only to level the playing field for U.S. firms, but also to strengthen the rules of the game. We want international economic competition to foster economic development and to strengthen democratic institutions.
OECD INITIATIVES The United States has made efforts to address these vital interests consistently over the past twenty years. Initially, there was little support for such initiatives in either the Organization for Economic Cooperation and Development (OECD) or the United Nations, and they unfortunately languished in these bodies.
Early in this administration, however, Secretary of State Warren Christopher reviewed the state of affairs on illicit payments, and decided that the time had come to put more political muscle behind our effort in the OECD. Senior administration officials have regularly raised the issue at policy level meetings with a host of governments.
The push has begun to produce results. The United States succeeded in having the OECD approve the "Recommendation on Bribery in International Business Transactions." This proved to be a remarkable breakthrough in the battle against corruption. The 1994 Recommendation not only calls on member states to take "concrete and meaningful steps" to combat bribery, but has also set into motion various initiatives in the OECD and other fora.
In April, for example, the OECD nations agreed that the tax deductibility of bribes paid to foreign officials should be eliminated. Henceforth, the OECD stated, the incredible practice of permitting firms to actually pay bribes and then deduct the amounts from the taxes they owed to their governments should cease.
In May, OECD Ministers committed in principle to criminalize foreign commercial bribery in an effective and coordinated manner, and to consider specific proposals at the May 1997 Ministerial to accomplish this. We look forward to, and will work toward, this additional major step forward.
The OECD is also working in the areas of government procurement policies and auditing and accounting standards. This effort is intended to reinforce the principles of "best practice" in order to ensure that government policies in these areas can help to deter bribery.
These are our key objectives in the OECD between now and next spring's Ministerial:
-- to ensure the effective implementation of the tax deductibility recommendation, and;
-- to obtain a clear commitment for early national legislation by OECD members to criminalize foreign commercial bribery.
Certain OECD members insist that only a well-articulated international convention can ensure "harmonized" criminalization. Though we understand the motivation for such a convention, we also know that its negotiation would be a lengthy and uncertain endeavor. We believe the OECD can agree on reasonable guidelines to guide national legislation, and we intend to press for such an outcome by next spring.
In addition to their substantive value, these OECD actions have broader implications. First, they counter the perception that in multilateral fora the group instinct is to form a talk shop, and to avoid action. These OECD steps prove that where there is political will and strong leadership much can be accomplished. Finally, the OECD initiatives have already created tremendous momentum that will continue to spur serious work on illicit payments.
U.S. NATIONAL ACTION Our involvement and leadership in these OECD initiatives are obvious indications of our commitment to the multilateral process and our recent successes encourage us to redouble our multilateral efforts. We have taken steps to ensure that the OECD Recommendation against paying bribes is honored.
One example is the agreement by the U.S. Overseas Private Investment Corporation (OPIC) to require a project company seeking OPIC financing to certify that bribery was not used to obtain the contract. Similarly, we are considering ways of amending export advocacy guidelines to ensure that the United States is not advocating for companies that have paid bribes.
National measures like the ones I've described are useful resources at our disposal that we will not hesitate to deploy in the war on corruption. Indeed, an individual nation's responsible action is a prerequisite to make multilateral agreements do as they are intended. We will pursue a variety of national measures that foster and support multilateral efforts to combat corruption.
OTHER MULTILATERAL INITIATIVES In addition to the OECD Recommendations, the United States has successfully shepherded other multilateral initiatives.
On March 29, the Organization of American States concluded the Inter-American Convention against Corruption, which the United States signed on June 2. The Convention serves as a powerful political statement by leaders of the Hemisphere that they will no longer tolerate the corrosive effects corruption has on free markets and the democratic system.
From the U.S. perspective, the highlight of this Convention is the obligation it creates for signatories to criminalize transnational bribery of public officials. The Convention also makes transnational bribery an extraditable offense, provides mutual legal assistance in investigations of corruption, and calls for the seizure and forfeiture of illicit gains.
Another hemispheric success involves the NAFTA-created North American Development Bank (NAD). As a result of State Department and Treasury initiatives, the NAD Bank Charter requires companies to certify that they have not engaged in bribery of foreign or domestic officials in furtherance of a Bank project. They must also have active corporate policies that prohibit bribery in pursuit of corporate activity. They must also assert that they have not been convicted of bribery within five years of the certification. If the Bank discovers that a company has been convicted of bribery, it may debar that company from any future participation in a Bank funded or guaranteed project.
In the United Nations' Economic and Social Council (ECOSOC), the United States has proposed a draft Declaration on Corruption and Bribery in Transnational Business Transactions. This non-binding political resolution reflects the issue areas we have focused on in the OECD and would provide important global political support for our objectives in the OECD.
The New Transatlantic Agenda, the product of last year's U.S.-European Union (EU) Summit, urges EU members to combat illicit payments by implementing the 1994 OECD Recommendation on bribery in International Business Transactions. The private sector counterpart to the Transatlantic Agenda, the Transatlantic Business Dialogue, went one step further and called on EU nations to criminalize bribery.
One area that is ripe for change and where the United States will channel much energy in the future is government procurement. Procurement markets account for trillions of dollars in commercial transactions. The World Bank has made welcome improvements to its procurement regulations to deter the use of bribery in World Bank procurement activities. We hope to see this replicated in other regional development banks.
In the World Trade Organization (WTO), the United States has set its sights on ensuring that the international procurement process is open and transparent. The WTO Government Procurement Agreement (GPA) satisfies this standard, but it is of limited use, as only 26 countries have signed it thus far, mainly because few countries can meet its rigorous procedural requirements.
Of course, the United States will continue to press for universal accession to the GPA, but in the meantime, we have developed an alternative strategy. We will seek a mandate at the Singapore Ministerial to negotiate an interim, stand alone procurement arrangement based on transparency, due process and openness in government procurement.
The best evidence that combating overseas bribery has come of age as a policy issue is the fact that senior policy makers from around the world are clamoring to get involved in it. For those of us who have long sought substantive progress on this issue, this is an immensely satisfying development.
Illicit payments, bribery, corrupt practices: whatever the name, the practice destroys more than the principles of economic good sense. It destroys a nation's reputation as a trustworthy, dependable partner. Worse, it eats away at a people's trust and confidence in their government to act honorably in their name.