Transnational bribery

Business America, Sept, 1996

The Problem

For a number of reasons corruption abroad undermines our national and economic security here at home. First, bribery is a barrier to trade which hurts U.S. commercial interests. Bribery is essentially an unpredictable and unfair tariff increase. U.S. exporters are put at a competitive disadvantage (or precluded from participating in major projects altogether) when foreign firms engage in bribery, while U.S. companies--because the U.S. is the only country which specifically outlaws bribery of foreign officials--do not. Bribery and corruption can have a major impact on U.S. jobs and exports. Companies that produce better products at a better price are penalized as contracts go to sellers whose product would otherwise be less desirable. Often the harm is not limited to one lost sale: downstream exporters also lose potential sales of replacement parts or servicing, and fewer future sales are possible when scarce resources are spent on bribes.

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.

"I can promise you that the President and his Administration will do its part to ensure that bribery and corruption are the exception, not the rule, in international commerce." --Michael Kantor, Secretary of Commerce

"Our prosperity as a nation in the 21st Century depends on our ability to compete and win in international markets. The Clinton Administration has done more the' any other to help our exporters compete putting our own economic house in order, establishing an export promotion strategy for the first time, and negotiating solid agreements that will help open markets and level playing fields around the world." --Laura D'Andrea Tyson Assistant to the President for Economic Policy

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 exhorbitant price, to garnering a judge's favorable ruling, or to ensuring that a civil service position is awarded to a sympathetic individual.