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Thursday, 6 August 2009

Foreign engineered corruption?

An interesting piece from The New Vision drawing focusing on the 2008 Bribe Payers Index. The current Namibian corruption case certainly appears consistent with the assessment :

Indian and Chinese companies are the most likely to pay bribes when operating in Africa. These are the findings of the 2008 Bribe Payers Index of Transparency International, a global corruption watchdog. Worldwide, companies from China and India also score among the top four in all three categories of bribery assessed. These include bribery of high-ranking politicians or political parties, bribery of low-level public officials to speed up things, and the use of personal relationships to win public contracts.

The Berlin-based organisation interviewed 2,742 senior executives from companies in 26 developed and developing countries, picked for their volumes of imports and direct foreign investments. The sectors found the most affected by bribery were construction, public works contracts, real estate and property development, oil and gas, and mining. In these sectors, according to Transparency International, two types of bribery exist: the direct bribery of public officials to obtain contracts, and 'state capture', meaning efforts by firms to shape and influence the underlying rules of the game.
The banking and finance sectors were seen to perform considerably worse in terms of state capture than bribery of public officials.

"Africa's development efforts are being hampered by exporting companies from the developed and emerging markets which continue to bribe their way into winning contracts", says the Transparency International report. "Foreign companies that commit the crime of bribery are undercutting Africa's anti-poverty efforts," states its regional director for Africa, Casey Kelso. "African countries should prosecute them vigorously. Regional development institutions, such as the African Development Bank, can help by enforcing debarment programmes that block crooked companies from profiting from development dollars while the poor are left out of the picture."

One of the reasons Asian companies are more likely to pay bribes abroad is the fact that they cannot be held accountable at home. China and India do not have laws that govern bribery of officials abroad. While China has strengthened its legislation on corruption involving its own officials, it has no laws that prohibit foreign bribery. Legislation in India is even weaker. There is no definition of foreign bribery in India and there are no provisions on foreign bribery in its Prevention of Corruption Act.

"Even if foreign bribery were a criminal offence, obstacles would exist including jurisdictional limitations and lack of liability for corporates," according to the Transparency International report.
"Furthermore, gifts, travel expenses, facilitating payments and grease payments are not considered an offence under the Prevention of Corruption Act."

India has also refused to cooperate with other governments on investigating corruption cases. "There are foreign bribery cases in which the Indian government has not responded in a satisfactory way to requests for mutual legal assistance from other states," the report says.
Moreover, China and India have refused to adopt the OECD Anti-Bribery Convention. The convention, which came into force in 1999, establishes legally binding standards to criminalise bribery of foreign public officials in international business transactions. The treaty has been adopted by the 30 member countries of the Organisation for Economic Cooperation and Development (OECD) and eight non-member countries - Argentina, Brazil, Bulgaria, Chile, Estonia, Israel, the Slovenia and South Africa.

"The progress (by the convention) will be undermined as long as major players such as China, India and Russia remain outside the framework," says Transparency International.

The convention was established out of a genuine concern among governments of rich countries that bribery was a widespread phenomenon in international business transactions, including trade and investment. Apart from the serious moral and political implications, the governments realised that the practice undermined good governance and economic development in developing countries and distorted international competitive conditions.

The 38 member states have vowed to make it a criminal offence under its law for any of its nationals or companies to offer or promise "undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official in order to obtain or retain business or other improper advantage in the conduct of international business."

They also agreed to make complicity in an act of bribery, including incitement, aiding or authorisation, a criminal offence. "The bribery of a foreign public official shall be punishable by effective, proportionate and dissuasive criminal penalties. The range of penalties shall include deprivation of liberty sufficient to enable effective mutual legal assistance and extradition," reads the convention.
Penalties may include monetary sanctions as well as seizure of the bribe, the proceeds of the bribery or confiscating property amounting to the value of the proceeds.

The countries further promised that investigation and prosecution of bribery cases will not be influenced by "considerations of national economic interest, the potential effect upon relations with another state or the identity of the people involved".

In order to combat bribery of foreign public officials effectively, they resolved to also punish companies which do not keep books and records according to auditing standards, or which falsify data.
This, the convention said, is to prohibit off-the-books accounts, inadequately identified transactions, non-existent expenditures, as well as the use of false documents by companies for the purpose of bribing foreign public officials or hiding bribery. The member states promised to give each other prompt and effective legal assistance, as well as provide any information or documents needed for the purpose of criminal investigations and proceedings.

"A party shall not decline to render mutual legal assistance for criminal matters on the ground of bank secrecy," the convention reads.

The 38 member states meet every year to discuss progress reports on cases reported and investigated, as well as monitor the full implementation of the convention. In the last decade, the convention has resulted in more than 350 investigations. Over 60 individuals and companies have been sanctioned for committing foreign bribery. And although Indian and Chinese companies have been named in many overseas corruption scandals, there have been no cases brought in either country for foreign bribery.

The Volcker report on the UN Oil-For-Food Programme in Iraq, for example, implicated over 120 Indian companies. The fact that firms from rich countries are bound by rules which do not apply to companies from emerging economies, operating in the same environment, provides for unfair competition and disadvantages those who want to conduct clean business. Transparency International, therefore, urges China and India to sign the Anti-Bribery Convention expeditiously, warning that the treaty might collapse if the present unjust conditions persist.

"Major free riders outside the system are a strong disincentive for OECD-based companies and OECD countries to play by the rules. If the system breaks down, everyone will lose.


  1. Well, I can't help but link this to what I said earlier about George Kunda praising Chinese investors at the Africa Business Forum, because they don't bring up issues of corruption, governance and human rights.

    If we're serious about fighting corruption, which appears to have reached epic proportions, then we ought to begin looking at money from foreign investors holistically.

    There are corrupt Western organisations too, which are usually exposed sooner or later by their own governments or media. When was the last time we heard of a Chinese company exposed for corruption by Chinese media or authorities? Most of these companies are actually government sponsored!

  2. Zedian,

    When was the last time we heard of a Chinese company exposed for corruption by Chinese media or authorities? "


    Serious point though!

    For all western corruption, you have the likes of Dispatches chasing the likes of Billy!

  3. Zedian,

    That is certainly hard to find, but the Chinese aren't hesitating to go after Rio Tinto, as reported by the NZ Herald News:

  4. Yakima,

    Most definitely the Chinese authorities will act if, and only if, their national interests are threatened.

    The Post has a rather disturbing story suggesting that BGRIMM, the Chinese explosives company behind the Chambishi disaster of 2005, was to resume operations! My immediate reaction was, "Shouldn't the owners be in jail by now?"

    As I said earlier, we ought to be looking at investment holistically.


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