Text: "Transnational Bribery" a Chapter from the U.S. National Export Strategy Report
Second, transnational bribery undermines U.S. objectives to promote democracy and economic development in developing countries. Bribes undermine democratic accountability and distort trade and investment in countries where it flourishes. Officials who reap large dividends from bribes are not accountable to their citizens; weak governments become weaker and public trust is harder to maintain. The impact of the resulting misallocation of resources is likely to be greatest in the countries least able to afford it. While fragile democracies are the most vulnerable, the democratic underpinning of even the most developed countries are threatened by corruption as it becomes more difficult to separate bribery abroad from bribery at home.
Third, corruption abroad inhibits our ability to play a key role in the reconstruction of economies where we have important foreign policy interests. A strong role for U.S. trade and investment is critical to support the peace process in recently war-torn economies. The best way for a peace process to take hold and become durable is by creating a better life through jobs in the private sector. Bribery both limits the ability of U.S. companies to play this essential role and threatens the establishment of these fragile democracies.
Finally, bribery and corruption affect the strength of the global trading system. In countries where it exists, it hurts the economy by denying it the benefits of trade agreements. And officials who engage in bribery may oppose negotiations to liberalize their economies because it could disrupt relationships which benefit them personally.
While it is difficult to measure the full extent of its effect, we are beginning to get a better sense of the problem's magnitude. Since the Organization for Economic Cooperation and Development (OECD) adoption of anti-bribery recommendations in mid-1994, we have learned of significant allegations of bribery by foreign firms in 139 international commercial contracts valued at $64 billion. We estimate U.S. firms lost 36 of these contracts, valued at approximately $11 billion. Since these figures represent only those cases which have come to our attention, we suspect the magnitude of the problem is much greater than these estimates suggest. Bribery continues to be pivotal in many export competitions, with the bribing companies still winning an estimated 80 percent of the contract decisions.
Traditional competitors of U.S. companies from other OECD nations have paid the lion's share of transnational bribes in the past. As OECD governments move toward officially discouraging the practice, the preponderance of the practice in these markets may diminish. But it is clear that this has become a worldwide problem as companies from non-OECD countries have begun to engage more actively in bribery.
Transnational bribery is often masked by euphemistic terms, such as "inducement," "gratuity," "sweetener" or "commission." It generally involves a company from an industrialized country offering an illicit payment to a developing country public official with perceived or real influence over contract awards. The influence sought varies from shifting a contract award to a favored bidder or at an exorbitant price, to garnering a judge's favorable ruling, or to ensuring that a civil service position is awarded to a sympathetic individual.
Major contracts in infrastructure or defense may be so large that a bribe which is very small - from the bidder's point of view - is nonetheless a fortune to a government official. Although even a relatively small bribe may be effective, recent examples exist of European firms offering agent commissions of 20 percent or more on a $1 billion contract in an Asian market if the European aircraft was chosen.
Our Recent Success The U.S. has led the charge against bribery and corruption on several fronts, and over the past year we have made progress. We have worked to stop transnational bribery on both the "supply" and "demand" side of the problem -- making it disadvantageous for companies to pay bribes as well as making it difficult for those awarding contracts to be influenced by bribes when doing business. We have also supported initiatives in various crosscutting fora, such as the World Trade Organization (WTO), the Organization of American States (OAS), Asia-Pacific Economic Cooperation (APEC) fora and the United Nations (U.N.). We also are looking at other domestic near-term measures that will be meaningful for the U.S. business community as these multilateral steps take root. These efforts actively involve the Departments of State, Treasury, Commerce and Justice, and the Office of the U.S. Trade Representative.
On the supply side of the equation, a key obstacle has been that no other country specifically outlaws foreign corruption. U.S. firms have been prohibited from bribing foreign officials since 1977 under the Foreign Corrupt Practices Act. While we had hoped other countries would follow our lead, they have not yet followed suit, although a few countries have stated publicly that their existing criminal statutes can cover bribery abroad. As a result, many of our trading partners' domestic corporations are legally able to pay bribes to foreign officials while American companies cannot.
Our major initiative to stop the flow of bribes from countries whose companies engage in corruption has been in the OECD. Our agenda has been to get other OECD countries to join us in making international bribery a criminal offense and to discourage bribery through other legal changes (such as eliminating tax deductibility). Events this year have moved us closer to our goal.
The U.S. launched its first efforts to multilateralize prohibitions on transnational bribery in the OECD shortly after the 1977 passage of the Foreign Corrupt Practices Act. After unsuccessful attempts in the 1980s to develop meaningful disciplines building on an anti-bribery provision in the OECD's Guidelines on Multinational Enterprises, the United States proposed negotiation of an international agreement in the OECD on the prohibition of overseas bribes (as mandated by the 1988 Trade Act). In 1993 the Clinton Administration elevated U.S. efforts to secure action in the OECD by involving high-level officials from the State and Treasury Departments. The United States sponsored the 1994 OECD Recommendation on Bribery in International Business Transactions that calls on member states to "take concrete and meaningful steps" to deter, prevent and combat bribery of foreign public officials.
The first significant OECD steps on bribery came to fruition at the May 1996 Ministerial Conference. First, the OECD adopted the Recommendation on Tax Deductibility of Bribes to Foreign Public Officials, which calls on members that allow the tax deductibility of bribes to "reexamine such treatment with the intention of denying this deductibility" (more than half of the OECD member states treat international bribery as a business expense, hence consider it tax deductible). Second, OECD Ministers made a political commitment to criminalize bribery "in an effective and coordinated manner," and to examine the "modalities and appropriate international instruments to facilitate criminalization and consider proposals in 1997."
Next steps at the OECD are for countries to report to November and February working group meetings the actions they have taken in implementing these recommendations. These will form the basis for a Secretariat report to the May 1997 OECD Ministerial. Our hope is that the outcome of that process will be agreement on principles for criminalization and means to implement those principles. At the June 1996 Lyon Summit our OECD efforts were reinforced when the G-7 resolved to combat corruption in international business transactions through supporting ongoing efforts in other multilateral organizations.
On the demand side of the problem we have been working to implement a new OAS convention criminalizing transnational bribery and to implement the anti-corruption certification process included in financing supported by the North American Development Bank (NADBank).
Recent success in the Organization of American States (OAS) on an Inter-American Convention Against Corruption indicates bribery is a problem of concern not only to the U.S. -- it is a hemispheric issue that other OAS countries also recognize as a priority. The Convention, which came about as a result of the 1994 Summit of the Americas Plan of Action, was completed in March 1996. It has been signed by 23 of the total 35 OAS member states, but has not yet been ratified by any country.
Among other achievements, it is the world's first anti-corruption treaty which requires signatories to criminalize bribery of foreign officials. Signatories must update their domestic legislation to criminalize a set of specific corrupt acts related to bribery and illicitly obtained benefits. Cooperation among signatories is strengthened on extradition, mutual legal assistance, and asset forfeiture for corruption-related crimes.
While the Convention does not set specific deadlines for implementation of these commitments, discussion is already underway on ways to help member countries rewrite laws and regulations to comply and technical and other assistance to facilitate the process. The OAS Secretary General is required to report to next summer's General Assembly on member countries' progress in adopting and implementing required changes.
In the NAFTA-created NADBank, the U.S. successfully won agreement from its NAFTA partner Mexico in 1996 that its guidelines require companies to certify that they have not engaged in bribery of foreign or domestic officials in projects funded by NADBank. Companies must also have corporate policies that prohibit bribery and must assert that they have not been convicted of bribery within five years of the certification. If NADBank discovers that a company has been convicted of bribery, it may debar that company from future participation in a NADBank funded or guaranteed project. Secretary Rubin has urged that the Multilateral Development Banks (MDBs), including regional banks, press for similar procedures in the projects that they fund or guarantee.
Crosscutting Measures to Combat Corruption The United States is pursuing initiatives in many multilateral fora that will reduce transnational bribery even as they pursue other U.S. objectives. We will attempt to launch negotiations at the December Singapore Ministerial on an interim agreement to increase the openness and transparency of foreign government procurement -- which will have direct market access benefits for U.S. firms. We are also working with the World Bank and other multilateral development banks to assist them in establishing procedures that guard against bribery and corruption in projects which they sponsor. And we are looking at other effective measures we can take domestically that will help equalize the competitive posture of U.S. firms in major project competitions with other foreign companies.
In the World Trade Organization (WTO) our near-term goal is an interim arrangement negotiated with all WTO members which would promote transparency, openness and due process as a step towards a subsequent comprehensive WTO procurement agreement.
Membership in the new WTO Government Procurement Agreement (GPA), which took force on January 1, is voluntary rather than mandatory for WTO members. Signatories are predominantly industrialized countries, including the United States, Canada, the EU member states, Israel, Japan, Norway, the Republic of Korea and Switzerland. The United States is continuing to encourage individual countries to accede to the GPA with negotiations now ongoing with Singapore and Taiwan, but most WTO Members have indicated that they are not ready because its strict disciplines would require substantial changes in domestic laws and procedures. As a result, many key markets in Asia, the Americas, Eastern and Central Europe and Africa are not subject to the rigorous disciplines of the Government Procurement Agreement. Estimates of the value of procurement markets in these countries are in the trillions of dollars.
To move more countries towards implementing government procurement reforms and eventual commitment to the GPA, the United States and some of our trading partners have agreed to seek consensus at the Singapore Trade Ministerial on a mandatory WTO interim procurement accord including disciplines on transparency, openness and due process. This understanding was reached at the Kobe Ministerial this April among the Quad countries (the U.S., Japan, EU and Canada), and reiterated at the G-7 Ministerial in July. Disciplines may include publicizing procurement opportunities, setting out specific evaluation criteria, awarding of contracts strictly on the basis of specified criteria and providing access to independent review bodies to challenge procurement decisions.
In the Asia-Pacific Economic Cooperation Forum (APEC) and the Free Trade Area of the Americas (FTAA) we are opening a dialogue with developing countries on transparency and accountability on procurement and, in the process, building a consensus for a WTO initiative prior to the Singapore Ministerial. The Action Plan of the Summit of the Americas calls on the "governments of the world to adopt and enforce measures against bribery in all financial or commercial transactions within the Hemisphere." APEC's Osaka Action Agenda called on Member economies to achieve transparency in their procurement laws and procedures. After the Ministerial, efforts in these regional groups are intended to complement WTO work.
In the United Nations the U.S. introduced a proposal for a "United Nations Declaration on Corruption and Bribery in Transnational Commercial Activities" at the July 1996 session of the U.N. Economic and Social Council, which calls on member states to criminalize bribery (domestic or transnational) and prohibit tax deductibility of bribes. The U.S. has also played an instrumental role in the development of a Model Procurement Law of the United Nations Commission on International Trade Law (UNCITRAL). The Law is designed to promote transparency and objectivity in public procurement proceedings; it specifically requires the rejection of a tender, proposal, offer or quotation if it is accompanied by a bribe from a supplier or contractor. Most recently Poland and Albania adopted the law, and a number of other countries are considering its implementation.
The U.S. has pursued an aggressive anti-bribery strategy through the Multilateral Development Banks (MDBs) to strengthen guidelines for procurement in contracts they finance. In 1995, the World Bank revised its procurement rules for goods and works to strengthen transparency, mandate the use of Standard Bidding Documents, incorporate written guidance to bidders, and tighten and clarify bidding procedures. These revisions are safeguards against bribery and corruption, and are supplemented by ongoing Bank training and technical assistance for member governments' contracting officials and auditors.
This year the World Bank took additional action against bribery by explicitly stating that it is the Bank's policy not to tolerate fraud or corruption on Bank, financed contracts by bidders or borrowers. Anti-bribery amendments to the World Bank's loan conditions, procurement rules, and standard bidding documents were approved in July 1996. The amendments require disclosure of commissions and gratuities paid or to be paid to agents relating to their bids or to contract execution on World Bank financed contracts. Sanctions were incorporated into the procurement rules. The Bank will reject proposals for contract award or cancel the portion of the loan if the bidder or the borrower has engaged in fraud or corruption in the procurement or execution of the contract. Companies determined by the Bank to have engaged in corrupt or fraudulent practice will be blacklisted from participation in Bank-financed contracts, either indefinitely or for a stated period of time. These amendments are major steps forward.
World Bank management has also proposed three interrelated, constructive approaches to controlling corruption through 1) economic policy reforms in developing countries, 2) institutional reforms in developing countries, and 3) the Bank's fiduciary responsibility on its projects. These approaches will be more fully explored in discussions with the Board later this year. Simultaneously, we are pressing the Bank to enhance its supervision of procurement through increased procurement staffing, more rigorous headquarters review of procurement, limited delegation of procurement oversight to field offices, and comprehensive one-stop advertising.
The World Bank procurement reforms reflect useful interchange on the corruption issue between Bank management and U.S. business community representatives, as well as with U.S. government officials. An exchange of letters between the President of the World Bank and the Chairman of the Business Roundtable's International Trade and Investment Task Force has helped inform World Bank staff efforts in preparing amendments to procurement guidelines and bidding documents.
The Development Committee of the World Bank and the International Monetary Fund addressed international bribery as part of its major examination begun in late 1994. In a report released in March 1996, the Development Committee Task Force emphasized the MDBs' important role in helping member countries create and maintain an environment of effective government and a strong civil society, including a reliable framework of rules and institutions. The report recommended that MDBs coordinate procurement policies and rules.
Treasury Secretary Rubin has strongly endorsed this task force recommendation and has urged its incorporation into the ongoing reform efforts now underway at all of the multilateral development banks. He has underscored the need for the institutions to establish uniform procurement rules harmonized to the highest standard, the required use of standard bidding documents, strong headquarters oversight of the procurement process, and address transnational bribery on a collaborative basis.
Domestic Initiatives Against Bribery While we continue to work abroad in all available multilateral fora, we must also ensure our domestic policies discourage bribery and corruption on the part of both U.S. companies and companies abroad which benefit from U.S. programs.
To this end, we will add an anti-corruption amendment to ensure that our Advocacy Guidelines promote equitable competitive conditions for U.S. companies and so that our advocacy assistance is not used in any manner that would promote transnational bribery. These guidelines outline the circumstances under which the U.S. government provides support for companies submitting international commercial bids or proposals. This support can take the form of letters, representations, or other interventions by U.S. officials.
Several U.S. companies have expressed concern that under the current Advocacy Guidelines, foreign-owned U.S. companies may be able to take advantage of U.S. advocacy assistance while their foreign parent company (or its subsidiaries) may nonetheless engage in the bribery of foreign government officials. We will amend our guideline procedures to address this problem.
While U.S. companies must comply with the Foreign Corrupt Practices Act (FCPA) to benefit from advocacy support, foreign parents and affiliates of U.S. entities seeking assistance are not subject to the FCPA. Therefore, we are amending the Advocacy Guidelines to condition the provision of advocacy support on the U.S. entity and its foreign parent and affiliates not paying bribes in connection with the transaction for which advocacy support is sought and their maintaining a policy prohibiting the bribery of foreign officials.
The Export-Import Bank (Ex-Im Bank), before it approves a disbursement under a loan or guarantee, requires the U.S. supplier to submit a Supplier's Certificate signed by a company officer which discloses any discounts, allowances, rebates, commissions, fees or payments other than those that are disclosed in the invoices, are payable to regular full-time employees for regular compensation, are regular commissions or fees in the ordinary course of business to regular agents or representatives, or are bank letter of credit fees.
Under the insurance program, at the time of claim filing Ex-Im Bank requires the policyholder or the supplier, as appropriate, to submit the same information regarding the insured transaction. This information, together with payments disclosed in the invoices, is subject to questioning by Ex-Im Bank staff. False representations can subject the certifying party to the penalties provided by law for the making of false statements in applications relating to Federal government programs. If any payments disclosed in the Supplier's Certificate, claim documentation or invoices appear to be inappropriate to the normal course of doing business, Ex-Im Bank may refer the matter to the U.S. Justice Department for further investigation. In addition, Ex-Im Bank's documentation for long-term transactions contains representations by the borrower and the suppliers that the purchase contract and the performance by the parties of their obligations under it does not violate any applicable laws. Failure of this representation to be true constitutes an event of default, giving Ex-Im Bank the right to exercise all of the rights and remedies available under the financing agreement and under applicable laws.
To minimize any possibility of bribery in connection with transactions which Ex-Im Bank might support, Ex-Im Bank recently revised its supplier certificate to require, in addition to the information already required from the suppliers as described above, disclosure of offers or other arrangements by the supplier or by third parties for any payments not already disclosed in the invoices submitted to Ex-Im Bank. This additional requirement seeks to uncover unusual payments that take place with the knowledge of the supplier, but that are not made directly by the supplier.
The Overseas Private Investment Corporation (OPIC) requires that U.S. companies, investment funds, and joint ventures supported by OPIC financing (including foreign subsidiaries that are obligors on such financing) represent and covenant that their projects comply with the FCPA and all other applicable laws, including applicable foreign laws, pertaining to corrupt practices. A violation of these provisions could lead to a default on, or suspension of, OPIC financing, creating significant deterrents to such practices.
Similarly, OPIC insurance contracts provide that no compensation will be paid if corrupt practices by the insured are the preponderant cause of any otherwise covered loss. Thus, OPIC could decline to pay a claim if it determines, for example, that the insured precipitated a claimed loss by attempting to bribe or actually bribing foreign officials.
OPIC is also in the process of amending its insurance application form to obtain representations and covenants like those in its finance documentation. Breach of such provisions could lead to termination of insurance or denial of compensation for any otherwise covered loss.
The United States Agency for International Development (USAID) cooperates with OECD donor partners to reduce opportunities for transnational bribery in projects funded by bilateral assistance. USAID also promotes "good governance" in developing countries, which builds institutional capacity to fight corruption.
This May OECD Development Assistance Committee Members (United States, Germany, Austria, Belgium, Canada, Denmark, Spain, France, Finland, Italy, Japan, Norway, New Zealand, Portugal, U.K., Sweden and Switzerland) adopted a statement of principle to include anti-corruption provisions in bilaterally-funded procurement contracts.
Beginning October 1, 1996, USAID will require an anti-corruption statement in its bilateral assistance procurement contracts which will prohibit bribery and subject any such contracts to cancellation and legal action. However there is no specific date by which other Development Committee Members are required to implement this recommendation. Members will report to the Committee in December 1996 on their progress toward implementation.
USAID directly and indirectly reduces transnational bribery by providing technical assistance to developing countries' governments, private voluntary organizations and Non-Governmental Organizations (NGOs) to encourage respect for the rule of law and strengthen government accountability. USAID combats bribery and corruption in sectors where corruption is often endemic.
Focusing on three areas, these anti-corruption programs include activities which:
-- Develop integrated financial management systems and promote legal reform in public and private sectors;
-- Encourage collaboration between citizens and government officials to develop transparent and accountable governments. This includes active NGO participation in identifying, planning and implementing initiatives which attack corruption at its base; and promote higher standards in government practice and ethics; and
-- Provide support to NGOs and academics to enhance understanding of corruption's social costs and develop incentives for effective anti-corruption programs.
USAID's programs include a grant to the NGO Transparency International which has facilitated the development of local anti-corruption NGOs in over 40 nations. In addition, USAID continues to coordinate various conferences which are used as catalysts for developing anti-corruption strategies within governments.
USIA officers have worked with Embassy country teams throughout the world to encourage good government practices and to highlight the economic costs of corruption to developing countries. They have also helped persuade governments of developed countries to criminalize corruption of foreign government officials. In cooperation with USAID, USIA arranged a four-hour television interactive for Latin America on the Convention Against Corruption. A 1994 USIA conference on corruption in Brazil led to the creation of an indigenous non-governmental organization which last year held regional conferences in major Brazilian cities and an international conference in Sao Paulo. USIA programming has led to the founding of a Brazilian branch of Transparency International and two state-level non-government organizations to combat corruption. USIA has also implemented an outreach program in Africa, sending speakers to Tanzania, Uganda, Kenya and Ethiopia to discuss preventing corruption in economic institutions to safeguard development resources.
USIA will continue to strengthen its efforts on several fronts by providing authoritative spokespersons on a regular basis to USIA media - VOA, Worldnet TV, Wireless File and Foreign Press Centers - to keep foreign governments and public informed of U.S. policies on bribery. The agency will continue exchange and information programs to better inform foreign decision-makers on bribery issues, contribute to civic education programs that build public awareness of the civic and economic damage caused by corruption and conduct foreign public opinion research and foreign media reaction to document and analyze foreign views about anti-corruption campaigns.
The Strategy -- Accord top priority to pursuing criminalization of commercial bribery through the OECD in 1997.
-- Monitor closely OECD countries' implementation of their commitments to eliminate the tax deductibility of bribes.
The tax deductibility of bribes is a classic form of export subsidy. Several countries have taken steps to eliminate this practice in accordance with their OECD commitments, and we will be monitoring progress in this area closely.
-- Seek agreement at the Singapore Trade Ministerial on a firm schedule for negotiating and concluding the Interim Agreement on Government Procurement.
-- Work in APEC and the Free Trade Area of the Americas (FTAA) to promote transparency and accountability in member countries' procurement practices and seek APEC and FTAA groups' active support for Singapore Ministerial WTO negotiations.
-- Create a process to urge the prompt implementation of the OAS Convention and signing/ratifying by all outstanding OAS members.
Use embassy reporting to backstop progress monitoring by the official OAS mechanism.
-- Continue work with international financial institutions to ensure they implement the G-7 mandate on increased transparency and standardization in procurement.
- Seek to strengthen MDB procurement oversight at MDB headquarters and oppose delegation of procurement oversight to field offices in project countries. Seek other governments' active participation in both efforts.
- Seek commitment of the World Bank and other regional MDBs to require companies to commit that they have not engaged in bribery of foreign or domestic officials in bank-financed projects and that they have corporate policies that prohibit bribery.
- Encourage the World Bank and other regional development banks to take steps to ensure no bribery takes place in connection with any project for which they are providing financial assistance, through the inclusion of strong anti-corruption provisions prohibiting the bribery of foreign officials in tender and loan documents, followed by strict auditing and accounting measures to ensure compliance.
-- Amend Ex-Im Bank's Supplier Certificate to minimize any possibility of bribery occurring in transactions in which Ex-Im Bank may support.
In addition to disclosing irregular payments made by the supplier, suppliers will be required to disclose offers of irregular payments and irregular payments made to the buyer by third parties. This requirement will help uncover irregular payments that take place with the encouragement or approval of the supplier, but that are not made directly by the supplier.
-- Amend OPIC's insurance application to strengthen anti-bribery provisions and to require applicants to agree that projects will be carried out in compliance with all applicable U.S. and foreign laws, including those related to corrupt practices.
-- Amend the U.S. government's Advocacy Guidelines to condition advocacy assistance on the firm and its foreign parent or affiliates:
(1) not paying a bribe in connection with the transaction for which advocacy is sought, and (2) maintaining and enforcing a policy prohibiting the bribery of foreign officials. Companies must adhere to these conditions to receive advocacy support.
-- Establish at the Commerce Department a hotline for reporting possible instances of bribery of foreign officials by non-U.S. companies.
The hotline will provide a centralized, easily accessible location for reporting information on a confidential basis. The information collected will assist the U.S. government in assessing the nature and extent of foreign bribery and in formulating effective anti-bribery initiatives.
-- Continue USAID efforts to ensure that bilateral donor groups counteract transnational bribery through controls on bilaterally funded procurement and through efforts to support good governance reforms.
-- Support the activities of nongovernmental organizations like Transparency International in their efforts to combat international business corruption.
-- Consult regularly with the business community for their input on implementation of the commitments we have already obtained and new ideas on ways to curtail transnational bribery.