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    Firms Gang Up Against Bribes


    © International Trade Centre, International Trade Forum - Issue 1/2004

    Companies and multilateral organizations are moving against corruption in business life, bolstering national efforts to stamp out bribery.

    Corruption, declares the World Bank, is "the single greatest obstacle to economic and social development". President Lucio Gutiérrez of Ecuador agrees. "Corruption steals wealth from our own people," he says. "Corruption steals jobs. Corruption steals money for health care. People lose trust in their government and obviously they also lose trust in democracy."

    However, Augusto Lopez-Claros, Chief Economist and Director of the Global Competitiveness Programme of the World Economic Forum, remembers hearing that for many years, institutions such as the World Bank and International Monetary Fund (IMF) did not allow staffers to mention the word "corruption" in official papers. From the early 1990s, the IMF, the World Bank and regional development banks, along with key international institutions such as the Paris-based Organisation for Economic Co-operation and Development (OECD), have broadened the development debate to include such politically sensitive issues as the fight against corruption, the quality of governments and the effective use of development aid. ITC, too, encourages transparency in procurement to help small exporters compete for international contracts (see box on page 19).

    Hitting the poor

    "The harmful effects of corruption are especially severe on the poor," the World Bank observes in the official documents launching its anti-corruption initiative. The poor "are hardest hit by economic decline, are most reliant on the provision of public services, and are least capable of paying the extra costs associated with bribery, fraud, and the misappropriation of economic privileges."

    Since 1997 the World Bank Institute (WBI) has launched a series of programmes against corruption, including bribery and abuses within its own contracting system. For businesses, it issues an anti-corruption kit. It trains journalists in how to campaign against fraud and similar criminal activity in public life. "In the territory of the former Soviet Union alone, more than 200 journalists have been killed in the line of work as they investigated stories on corrupt officials or criminal gangs," reports the WBI's web site on corruption ( http://www1.worldbank.org/publicsector/anticorrupt/index.cfm).

    In two years the Bank declared misprocurement on about 40 contracts with a total contract value of US$ 40 million. It now keeps a public list of firms that have been barred from competing for contracts because of misconduct. The WBI points out that the Bank awards some 45,000 contracts a year worth US$ 45-50 billion.

    Reversing tradition

    "We estimate that corruption is a US$ 1 trillion industry around the world," reports Daniel Kaufmann, Director of Global Governance at the World Bank Institute. The WBI puts the cost of bribes as equivalent to a 20% tax. But Kaufmann also reports a "sea change" (a fundamental transformation) in the way businesses look at bribery. It is no longer seen as simply part of the cost of doing business.

    Corporate social responsibility

    One indication of the changing attitudes came in an announcement at the end of January by leading engineering and construction firms. The industry does not have a high reputation for honesty as a contractor across the world. But some 19 international companies, earning US$ 70 billion a year, have now committed themselves to "zero tolerance" for bribery, as reported Alan L. Boeckmann, Chairman and Chief Executive Officer of the Fluor Corporation, at an interactive session on corruption at the World Economic Forum's Annual Meeting in Davos.

    Jermyn Brooks, Member of the Board of Directors, Transparency International (TI), Germany, commented that the initiative has reversed the standard approach. The traditional view is that businesses are the victims of corrupt officials who seek bribes and special deals in return for favours. But for each receiver there is a giver, he insisted. The question facing international firms is: "Isn't it about time that the corporate sector took a leadership role in fighting corruption?" Brooks suggested.

    The construction and engineering initiative was welcomed by a leading trade union representative, Anita Normark, General Secretary of the Swiss-based International Federation of Building and Wood Workers, with some 10 million members. She said she was "very proud" of the companies for taking this lead and added the hope that other sectors - such as transport and logistics - will join the effort.

    Topping up salaries

    But executives in the Davos discussions on corporate action against corruption pointed to some of the difficulties: many officials in developing and emerging economies depend on corruption to top up their salaries. An East European cabinet minister noted that it is impossible for most public bodies to match the "pay" that officials can obtain through bribes

    One business owner who underlined that his company practices zero tolerance for bribery reported that officials in one country where he does business simply demanded more from local suppliers when the international company tried to stop under-the-table payments. Participants also suggested that industrial countries also have a "culture of corruption" via influence-peddling and closed deals. They highlighted the need to close loopholes in current regulations - such as contributions to political parties rather than individuals as the price of obtaining contracts. Carla Cico, President and Chief Executive Officer of Brasil Telecom, argues that recent corporate scandals are undermining the credibility of major trading countries to teach the emerging market countries or developing countries about governance and transparency.

    Cutting the defence bite

    Since 1999 an anti-bribery convention has been in operation, designed to cut off illegal payments to public officials. It was put together by the OECD, a club of largely rich economies. Mark Pieth, Chairman of the OECD Working Group on Bribery, says the convention has helped bring down corruption's "bite" into defence contracts to an estimated 5% from 15%. He also believed that private efforts cannot stamp out corruption. It is still the role of the public sector to "make things happen". Private codes cannot tackle the problems of enforcement or provide an effective way to deal with complaints, he argues. This is where the convention can give a ban some teeth.

    "We are still awaiting the first prosecutions in the courts of the 35 signatory countries," pointed out Peter Eigen, TI's Chairman, at the launch of its latest Corruption Perceptions Index in October 2003. But international action, media investigations and business initiatives are raising the stakes against corruption cultures that want to continue "business as usual".

    Steps for SMEs

    What can developing country exporters and transition economy businesses do against corruption?

    They can examine their national situation for the way in which recommendations on procurement are implemented. They can obtain the World Bank anti-corruption kit and pass details on to government officials. They can check the terms of the OECD Convention, see which countries have ratified the agreement, and press for its terms to be included in national legislation. Finally, they can join business initiatives against bribery by making contact through bodies such as the local chamber of commerce that can hook up with international coordinating organizations such as the International Chamber of Commerce.

    ITC encourages transparency

    Boosting export competitiveness through transparency measures can take many forms. Programmes to ensure transparency in customs operations, contracts and taxes are just a few of the ways to improve efficiency, reduce corruption and enhance competitiveness.

    We've highlighted some of ITC's contributions through technical assistance programmes on procurement and legal aspects of trade, and through its own purchasing activities.

    • At Buying from Africa for Africa "buyers-sellers" meetings, ITC matches suppliers of relief items from developing countries with buyers from international aid agencies. Exposing exporters to the procurement rules and procedures of international organizations and non-governmental organizations (NGOs) goes a long way towards improving transparency.

    Contact Osvaldo Agatiello, Programme Coordinator, ITC South-South Trade Promotion Unit, at agatiello@intracen.org

    • In a joint Managing Public Procurement programme with the World Bank and OECD, ITC helps public procurement officials and suppliers in developing countries to understand and apply good procurement principles and practice - including accountability and transparency.

    Contact Philippe Helluy, ITC Advisor on Public Procurement, at helluy@intracen.org

    • The Juris International web site features the full text and lists of ratifications of the main international treaties concerning illicit trade, including bribery. ITC's model contracts offer fair and equitable terms under which parties can deal.

    Contact Jean-François Bourque, ITC Senior Adviser on Legal Aspects of International Trade, at bourque@intracen.org

    • ITC procurement follows UN Financial Rules. The trend is towards greater transparency, bringing more access for new and small suppliers, including from developing countries. Competitive bidding is the practice; contracts are awarded based on compliance with specifications, price, technical quality and acceptability, and delivery schedules.

    See ITC's web page on supplying goods and services to ITC (http://www.intracen.org/gsps/about_cpu.htm).

    Related Forum articles

    • Humanitarian and Development Procurement: A Vast and Growing Market
    • Buying from Africa for Africa
    • E-procurement in the Aid Business
    • Improving SME Access to Public Procurement
    • Learning to Use Model Contracts

    These articles and more are available on the Forum web site (http://www.tradeforum.org).

    Prema de Sousa, Forum's Contributing Editor, wrote this box.

    Peter Hulm is Contributing Editor for this issue of Forum.