Corruption and International Business

Introduction

“ Every year, across the world, billions of dollars that are badly needed for health care, schools, shelter and clean water are lost to bribery, extortion and other forms of corruption. Corruption is found in all countries, but it is the vulnerable who suffer first and worst. Development is not the only casualty. Corruption steals elections, undermines good governance and the rule of law. It distorts markets and allows crime and terrorism to flourish. But corruption is not inevitable; it is not a force of nature. It is the result of human decisions and most often, human greed. As such corruption can be stopped. ”

Ban Ki- moon, Secretary General United Nations

Until twenty years ago, the mitigation of corruption was commonly regarded as a taboo topic. Companies were able to write off bribes as expenses in their tax statements and did so, frequently. At the same time, large amounts of development aid fell into the wrong hands and disappeared into dark channels, causing a desperate resignation by the many passionate people involved. When World Bank director Peter Eigen began to engage with ending the “systematic corruption”¹ he saw in Eastern Africa, in order to protect the citizens involved, the World Bank intervened with a memorandum from its legal department. He was told to stop; that this was not allowed, according to the charter of the World Bank; that this was unnecessary. He was told his initiatives to stop corruption were “meddling”² with the internal affairs of the member country he was engaged in. (TED Talk with Peter Eigen, 2010) In response, he founded a non- governmental organization (NGO) called ‘Transparency International’ in 1993, in order to halt the reach and influence of corruption in international businesses, organizations, and markets around the world. (Transparency International Website, 2013)

Since then, not only NGOs, but also international organizations such as the United Nations, supra- national bodies like the European Union (EU) and many national governments have enacted statements, policies and laws fighting all different kinds of corruption. Taking into account a PricewaterhouseCoopers (PWC) study from 2008, the common presence of corruption becomes strikingly obvious. In a survey conducted by PWC analysts, 63% of the interviewed senior executives answered they had been subject to some form of actual or attempted corruption; 45% said they had refused to enter a specific market or did not pursue a particular opportunity because of corruption risks; 39% claimed that their company had lost bids because of corrupt officials and 42% shared the opinion that their competitors paid bribes. (PWC Report: Confronting Corruption, 2008)

The questions that arise with that are numerous. Are these initiatives helping to fight and reduce the problem? Are private (on a company level or through NGOs) or public initiatives more effective? What can be undertaken in order to improve the performance and effectiveness of these programs? Transparency International founder Eigen mistrusted the self- regulation of governments, subsequently naming them “failing government systems.” These failing government systems siphoned off resources, wasted time, and worsened the lives of the citizens they were meant to improve. (TED Talk with Peter Eigen, 2009) Based on his vast experiences with the World Bank, he shared the opinion that these people needed to be protected against their own leaders, who often willfully continued the destructive cycle of corruption in order to keep the power in their own hands. (American Radio Works, 2013)

When comparing the different kinds of anti- corruption initiatives several assumptions can be inferred: firstly, governmental regulation, backed by legal action, seems to be the most powerful tool since severe sanctions such as prison sentences can be put into place. However, this occurs only in countries where stable political conditions are well- established and the government itself is not already undermined by systematic corruption. Secondly, initiatives that are backed by the private sector should have the necessary firepower due to funding and presence. Moreover, they should have a large impact if the participating companies commit to their policies. On the other hand, there is the latent risk that these programs are established as fig leaves, meant to simply cover fraudulent behvior. Lastly, NGOs can serve as catalysts for both public and private initiatives in the best case, encouraging accountability and progress within a project. In the worst case, however, they can often provide or simply be the outlets for corruption, losing and consuming millions under the guise of improving a given community or organization. In order to assess the successes of these government and private initiatives, it is crucial to further examine the multiple possibilities of conflict and friction and how they will impact the mitigation and eventual removal of corruption within these countries.

The various forms of corruption

Governmental anti- corruption initiatives predominantly aim at tackling graft involving government or state officials and in a second step the corruption that happens amongst private parties. Typically, corruption does not only exist in one single, recognizable form, so it must be distinguished and categorized before action can be taken.

Petty, administrative or bureaucratic, corruption is referred to as individual acts of single officials, misusing their decision power in order to receive personal favors. Petty corruption is commonly seen in situations “disproportionally hurting the poorest members of society”³ by forcing them to bribe public administration and services like hospitals, schools and the police. (Regional Anti- Corruption Initiative, 2013) Even though these acts are singularly described as petty, the aggregate is typically substantial.

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¹ Peter Eigen in TED Talk with Peter Eigen, 2010

² same source

³ Regional Anti- Corruption Initiative Definition