Corporations engaged in international business are facing formidable anti-corruption challenges. U.S. and other Western companies face the dual pressures of looming ever larger on the screens of official and media investigators, while on the other hand they find that winning big foreign deals is increasingly more difficult because of the rise of unscrupulous competitors.
The number of investigations of firms by the U.S. Department of Justice, the Securities authorities for alleged bribery of foreign government officials to win deals and for international money laundering is now at a very high level, according to a new report by Transparency International. Then, the focus of the media on bribe-paying companies and public officials is substantial. For example, The New York Times ran an exceptionally extensive series of articles on alleged massive bribe-paying by Wal-Mart in Mexico which has led to a U.S. Justice Department investigation.
Meanwhile, as the Chinese and Russians, as well as companies from a rising number of other emerging market countries (such as India and Brazil) engage in international competition, so unethical business practices in the global marketplace may well be on the rise. This is not to say all tycoons and big companies in emerging markets are corrupt, rather that their national authorities have so far shown zero interest in enforcing international conventions that explicitly criminalize the corporate use of bribes to win contracts from foreign governments.
The right response by business leaders is to say no to corrupt practices. They should set a tone of integrity at the helm of their enterprises; firing employees who make illicit payments to win deals and protecting employee whistleblowers. Encouraging business leaders to take this course are a range of important considerations:
- First, increased international cooperation by public prosecutors is strengthening efforts to gather incriminating evidence and boosting the number of cases being brought against corporations for bribing foreign government officials in violation of national laws consistent with the OECD Anti-Bribery Convention, and against financial institutions for money-laundering.
- Second, the World Bank is leading the way for international aid agencies in strengthening substantially the scale of investigations of firms that use bribes in aid procurement contracting and in imposing harsh sanctions on those firms found guilty.
- Third, legislation by the U.S. Congress and the European Parliament will force companies engaged in the oil, gas and mining sectors to start in 2014 to report their payments to foreign governments. This boost in transparency will gradually embrace more business sectors and place a sharper light on the relationships that companies have with foreign governments.
- Fourth, both the Group of 8 and the Group of 20 at summit levels this year have gone further than ever before in highlighting the need for greater official efforts to curb tax avoidance, tax evasion and money laundering and implement anti-bribery conventions that they have all ratified.
- Fifth, investigative journalism is exposing corruption on a daily basis - both traditional media such special investigative groups as Global Witness and ProPublica.com. This work, coupled with the rise in social media in disseminating information, is creating an age of transparency where rogue corporate executives and their corrupt government counterparts have ever fewer places to hide.
Meanwhile, there are the realities of global competition. For example, the Russian Government has signed the OECD Anti-Bribery Convention, but it has not shown any inclination to investigate Russian companies for paying bribes to foreign officials. The Chinese authorities have taken a host of bold actions in recent months to signal new anti-corruption zeal at home, but there is no indication that they plan to extend this to the activities of Chinese firms operating overseas.
As U.S. and Western companies weigh the pressures, they may be influenced by blunt calculations – will a fine for paying bribes if the firm is caught red-handed be at an acceptable level to have made a very profitable deal worthwhile anyway?
For example, banking giant HSBC was involved in billions of dollars of illicit banking transactions and when caught by the U.S. Department of Justice it agreed to settle money- laundering charges with a record fine of $1.92 billion. However, the U.S. authorities admitted that they did not bring criminal charges against HSBC because they feared that this could send shockwaves through the global financial system and do grave damage. The top executives of the bank were not prosecuted, nor have their peers at many other banks in cases involving international tax evasion, money laundering and other illicit activities.
In the non-bank area, for example, one wonders what size fine would really concentrate the mind and force a change of behavior at Wal-Mart, the world’s largest retailer, if current investigations of its Mexican activities leads to formal charges. It has sales of over $450 billion - what level of fine can be imposed on this giant corporation that would make a meaningful dent?
The central challenges that emerge in the changing landscape of international corporate bribery are: convincing business leaders across the world that integrity, not bribery, is the right path to pursue; convincing all members of the Group of 20 – including the Russians, Chinese, Brazilians and Indians – to make good on their anti-corruption policy pledges; and, encouraging public prosecutors and the courts to find appropriate punishments that are far more in line with the seriousness of the crimes of money laundering and the bribing of foreign government officials.
Perhaps this will happen when prosecutors, judges and the media place greater emphasis on the victims of these crimes.
These crimes distort markets and undermine fair competition. Most importantly, there are always victims. The secret payments to foreign officials usually flow into the offshore bank accounts of those officials and the domestic budgets of host countries are short-changed – so vital services to the poor are curbed.
The victims are, for example, all too evident in the many sub-Saharan African countries that are major exporters of oil, gas, gold, diamonds and other minerals and major beneficiaries of foreign direct business investment today – countries, as former United Nations Secretary General Kofi Annan recently noted: “Still have some of the worst human development indicators in the world. Millions of people suffer debilitating and protracted periods of ill health because of avoidable diseases. These resource-rich countries probably account for two-thirds of Africa’s out-of-school children – one in three of the world’s total.”