Trade Trumps Anti-Corruption

Important trading powers, such as Japan, the Netherlands, South Korea and Brazil, are failing to enforce national laws that call for criminal prosecution of companies from their countries that bribe foreign government officials and politicians.

Indeed, only four countries, which between them represent almost one-quarter of global exports, are fully enforcing their own laws to curb corporate corruption -- the United States, Germany, Switzerland and the United Kingdom -- according to a new report, "Exporting Corruption," published by Transparency International.

The widespread failure by many important exporting countries to curb business corruption can only be explained by their belief that boosting exports is far more important than reducing corruption. By turning a blind eye to the bribe paying by companies from their countries, these governments expect their enterprises will win trade deals that bring profits home and create jobs as well.

The current situation is scandalous. The non-enforcement of corporate anti-corruption laws encourages foreign government politicians and officials to seek bribes when negotiating government contracts with multinational enterprises. The corporate bribery, of course, distorts global market business competition.

No major trading nation takes a tougher line on corporations paying bribes to foreign officials than the United States, but this may well place U.S. companies at a competitive disadvantage in world trade.

Anti-Bribery Laws

This was certainly the case from 1978 to 1998 when the U.S. alone had a "Foreign Corrupt Practices Act" (FCPA) that made it a crime for a U.S. company to pay bribes to foreign government officials. The unlevel playing field that U.S. corporations confronted was meant to change, however, in 1998 when the Anti-Bribery Convention of the Organization for Economic Cooperation and Development (OECD) came into force. The Convention mostly replicates the details of the FCPA and 41 countries have signed it.

However, there seems to be a major gulf between signing a law and enforcing it when trade deals are in play. The victims are honest companies that refuse to pay bribes. Just as importantly, the victims are also the world's poor. When government officials see the opportunity for kickbacks from contracts then, all too often, they are willing to overpay for imports and purchase shoddy products. The citizens of their countries suffer as a result.

It is time that the OECD Anti-Bribery Convention was fully enforced. Just how bad matters are is revealed in the "Exporting Corruption" report. It assesses countries in four categories relative to their enforcement of the OECD pact:

  • Active Enforcement: just four countries, although they represent fully 23.1 percent of world exports -- U.S., Germany, U.K. and Switzerland.
  • Moderate Enforcement: five countries with 8.3 percent of world exports -- Italy, Canada, Australia, Austria and Finland.
  • Limited Enforcement: eight countries with 7.6 percent of world exports --France, Sweden, Norway, Hungary, South Africa, Argentina, Portugal and New Zealand.
  • Little or No Enforcement: 22 countries with 27 percent of world exports -- Japan, Netherlands, Korea (South), Russia, Spain, Belgium, Mexico, Brazil, Ireland, Poland, Turkey, Denmark, Czech Republic, Luxembourg, Chile, Israel, Slovak Republic, Colombia, Greece, Slovenia, Bulgaria and Estonia.

The U.S. Department of Justice has long been the largest and toughest enforcer of corporate anti-corruption laws. According to the new Transparency International report, between 2010 and 2013 there were at least 99 investigations initiated, 14 cases commenced (12 of which were major cases) and 132 cases concluded (67 were major cases that concluded with substantial sanctions). For many years the Germans, who pre-1998 allowed corporations to deduct their foreign bribes from their taxes, failed to enforce the OECD Convention. Then prosecutors discovered that Siemens, the largest engineering company in Europe, had a sophisticated global bribe-paying system in place involving vast payments. The Siemens disclosures created a public furor in Germany and encouraged prosecutors to take Germany's commitments under the OECD treaty seriously. In the last four years they have initiated investigations into 74 companies.

Silver Lining

The U.S. Department of Justice's ability to bring cases since the OECD Convention came into effect has been increased by the willingness of a growing number of foreign prosecutors from many different countries to cooperate and provide evidence. For example, last year, the U.S. prosecuted four executives from France's Alstom SA company for paying bribes in a deal with an Indonesian public utility -- the case was made in part because of information provided by Indonesia's Corruption Eradication Commission.

Fritz Heimann, a former lawyer at General Electric and one of the founders of Transparency International, has long been engaged in monitoring the OECD Convention's enforcement. He argues that it would now be helpful if the OECD collected and published data on mutual legal assistance requests relating to foreign bribery. This would add clarity to which governments are, and are not, cooperating with the U.S. on enforcement actions.

A Level Playing Field

The non-enforcement of corporate anti-corruption laws by many countries dare not be a pretext for watering down U.S. laws, as the U.S. Chamber of Commerce would like to see. In fact, it should instead be an encouragement for even greater prosecuting zeal by the U.S. Justice Department.

This is certainly the way the Obama Administration appears to approach the issue. The number of cases being investigated and prosecuted now by the U.S. authorities is high and the scale of punishments is mounting. The key is that the U.S. authorities have cast a wide net, not just going after U.S. companies, but also foreign firms that have U.S. operations or are listed on U.S. stock exchanges. ​

A comprehensive listing of anti-corruption enforcement actions against multinational companies is constantly being updated by Trace International that plays important roles working with honest businesses to strengthening their anti-corruption compliance systems and approaches.