Igor Osyka INTERNATIONAL BUSINESS TRANSACTIONS AND CORRUPTION I. INTRODUCTION2 II. GENERAL ISSUES OF CORRUPTION IN INTERNATIONAL BUSINESS TRANSACTIONS....

3 A. Definition of corruption B. Causes, costs and consequences of corruption 1. Causes of corruption a. Socio-political b. Economic 2. The costs and consequences of corruption. a. Non-economic b. Economic c. Commercial III. MEASURES TAKEN TO FIGHT CORRUPTION IN INTERNATIONAL BUSINESS TRANSACTIONS...9 A. Legal Instruments 1. Foreign Corrupt Practices Act 2. The OECD Anti-Bribery Convention 3. Inter-American Convention 4. GRECO 5. Criminal Law Convention on Corruption 6. Civil Law Convention on Corruption B. Measures Taken by International Organizations 1. United Nations 2. European Union 3. The World Bank 4. International Monetary Fond 5. International Chamber of Commerce 6. World Trade Organization. 7. Transparency International. IV. HOW TO DO BUSINESS IN HIGHLY CORRUPTED COUNTRIES27 V. CONCLUSIONS..30

I. INTRODUCTION After collapse of the communism in the Central and Eastern European countries, in modern conditions of economic growth, globalization, and new developments in technology, possibilities of doing business around the world have tremendously increased for American businesses. But at the same time and in the same conditions serious obstacles for business activities at the global level have increased too. These obstacles include development of organized crime and corruption in countries with transition. As discussed later in the paper, high level of corruption and criminalization of economy have negative influence not just at countries itself but at foreign and multinational corporations, which have intent to do business in those countries as well. This situation has attracted the attention of the international business community to problems of corruption in international business transactions and demanded some actions, including legislative ones. For attorneys who are going to practice law in the sphere of international business, it is very important to know about measures taken by the international community and the United States government in fighting and preventing corruption in international business transactions as well as recommendations developed by international organizations in this field. Moreover, the existence of the Foreign Corrupt Practices Act requires an attorney to be aware of corruption everyday in every single transaction especially when dealing with highly corrupted countries. As usual, American companies are trying to avoid conflicts with FCPA and the attorney in the majority of cases has the burden to deal with this. This paper intents to familiarize attorneys with: modern international concept of corruption and its influence at international business transactions; provisions and effects of FCPA on American businesses in foreign countries; measures taken at the international level to reduce corruption in

international business transactions; and some possible practical solutions for doing business in highly corrupted countries. Part II of this paper briefly analyses general issues of corruption: definition, causes, costs and consequences both for emerging economies and international corporations. The main idea is that corruption mostly effects developing countries in political, social and economic aspects but at the same time it has a very strong influence on foreign businesses too. Part III describes measures taken at international level to reduce influence of corruption at international business transactions. It includes analysis of international conventions to which United State is a party, FCPA, and measures taken by the main international organizations to reduce corruption in international business transactions. Part IV of the paper investigates practical solutions of doing business in conditions of highly corrupted environment.

II. GENERAL ISSUES OF CORRUPTION IN INTERNATIONAL BUSINESS TRANSACTIONS A. Definition of corruption There are a lot discussions devoted to the understanding of corruption. Different authors express different approaches in defining corruption. The narrowest approach contains definition of corruption as use of public office for private gain. 1 The broad approach contains abuse of not only public office but private or commercial one too. Based on these approaches authors distinguish three big groups of corruption: political, personal and commercial. The basic difference is in the office, power and position, which are abused, and aim of abuses. Political corruption may include bribery, use of governmental offices for private enrichment and
1

Maria Dakolias and Kim Thachuk, The Problem of Eradicating Corruption from the Judiciary: Attacking Corruption in the Judiciary: A Critical Process In Judicial Reform, 18 Wis. Int'l L.J. 353, 355 (2000). [Hereinafter Dakolias & Thachuk]

substitution of particularistic for universalistic norms of public decision-making2. Personal corruption may include violations of fiduciary duty, mendacity for private gains among friends and insider trading.3 Commercial corruption takes place when a supplier bribes a purchasing agent to induce a sale, a customer pays off an airline clerk to obtain access to first class, a firms public relations department pays a reporter to write a favorable story or managers at the top levels of a corporation might be paid to provide inside information on upcoming deals to investors and stock brokers.4 Corruption could have a lot of manifestations, which could be divided into two groups: criminal and civil. Criminal forms usually contain: bribery, extortion (exacting money coercively), fraud (an act of deception deliberately practiced with the view of gaining unlawful advantage), trafficking, embezzlement, (appropriating fraudulently to one's own use what is entrusted to one's care). Civil forms are different kinds of clientelism or patron-client relationships (where individuals use their public offices for personal aggrandizement or to gain favorable advantages for themselves or their friends, relatives).5 The main difference between these two forms is existence of criminal liability for acts of corruption. Its clear, that corruption is anti-social phenomenon but it is not always a crime. Some authors look at corruption like at system but not a single act. Such approach considers two analytical points. First, corruption may be represented as following a formula: C = M + D - A. Corruption equals monopoly plus discretion minus accountability. For instance, whether the activity is public, private, or nonprofit, and whether it is carried on in Ouagadougou or Washington, one will tend to find corruption when an organization or person has a monopoly power over a good or service, has the discretion to decide who will receive it and how much that person will get, and is not accountable.6 And
2 3

Id. at 356 Kim Lane Scheppele, The Inevitable Corruption Of Transition, 14 Conn. J. Int'l L. 509, 510-514 (1999). 4 UNITED NATIONS DEVELOPMENT PROGRAM, (3, July 1997), MDGD Discussion Paper 3, Economic Causes of Corruption, at http://magnet.undp.org/docs/efa/corruption3/o_UN-07b_Chp1.pdf 5 Dakolias & Thachuk , supra note 1 at 355-356. 6 Robert Klitgaard, International Cooperation Against Corruption, International Monetary Fund Finance & Development (March, 1998), No. 1, Vol. 35, Pg. 3, LEXIS, Nexis Library, IAC-ACC-NO: 20519366.

second, corruption is a crime of calculation, not passion.

There are both saints who resist all

temptations and honest officials who resist most. But when bribes are large, the chances of being caught small, and the penalties if caught meager, many officials will succumb.7 Here we need to distinguish system of corruption and systematic corruption, which some authors discuss too.8 While system of corruption discusses a nature of corruption, systemic corruption illustrates the scale of corrupted activity. A lot of authors dont pay attention to the distinction between bribery and corruption, what is wrong. Bribery as we can see is narrower then corruption and its not always the same. I need to pay attention to this and distinguish bribery from other forms of corruption because major legal documents that will be discussed later contain term bribery but not corruption. Bribery, as an act of corruption, always deals with obtaining of illegal payments with abuse of public or commercial office.9 The payment need not always involve the exchange of money (could be other gifts or advantages, such as membership of an exclusive club or promises of scholarships for children, special favors or influence). 10 As an act, despite the form it takes, corruption is always a two-way transaction; it requires a supply side (the briber) and a demand side (the one who receives the bribe). 11 Different degrees of corruption could be highlighted too. Like, for example "petty" corruption and "grand" corruption. Petty corruption usually involves small sums paid to low level officials to "grease the wheels" or cut through bureaucratic red tape. Correspondingly grand corruption takes place when large multinational companies paying millions of dollars to government leaders or politicians to obtain lucrative business contracts. But, in the authors opinion this distinction does not mean that some
7 8

Id. James P. Wesberry Jr., International Financial Institutions Face the Corruption Eruption, 18 J. INTL. L. BUS, 498, 509 (1998). [Hereinafter Wesberry ] 9 See John T. Noonan, Bribe (1987) for discussion of bribery. 10 Enery Quinones, What is Corruption, OECD Observer, (April 1, 2000), Pg. 23; LEXIS, Nexis Library IAC-ACC-NO: 64333488. [Hereinafter Quinones ] 11 Id.

forms of corruption are worse than others. Indeed, petty corruption which can interfere with the delivery of basic education and healthcare programs, can have very serious consequences, even to the extent of causing many more years of grinding poverty for the world's economically disadvantaged. 12 B. Causes, costs and consequences of corruption 1. Causes of Corruption In general, its very difficult to deal with things if you dont understand where they come from and why they exist. Thats why before starting a discussion about measures against corruption its important to understand its roots13 Its like in medicine, before starting a treatment, a doctor must diagnose the patient. The other important point I have to make is that when we are talking about roots of corruption we mean developing countries where a business is to be done by American corporation. Of course societies in each country with emerging economy are different as well as cultures, governments, mentality of people. An attorney should bear these diversities in mind when dealing with particular country. And it is very good idea to look at specific countrys custom before take some actions. For purposes of this paper, there is no need to go in deep and discuss each developing country separately. Im taking broad approach and just name causes of corruption in developing countries. Such conditions could cause corruption in any country, not just developing, but for today the majority of these factors or all of them do exist in developing countries. Causes of corruption could be divided into two big groups: socio-political and economic. a. Socio-political causes of corruption are following: (a) weak governance of a country; (b) dysfunctional governments budgets; (c) delays in the release of budget funds, especially when this
Id. See Nancy Bord, International Corruption: So What? World and I, (April 1, 1999), No. 4, Vol. 14, Pg. 86, LEXIS, Nexis Library IAC-ACC-NO: 54703786, for discussions of causes and consequences of corruption. See also State Dept's Wayne on Anti-Bribery Report to Congress, (1670), (29 June 2000) at http://www.fas.org/irp/news/2000/06/000629-bribery.htm, for discussions See also DENNIS M. ARROYO, MONDAY MORE TRADE MAY LEAD TO LESS CORRUPTION , Philippine Daily Inquirer (April 16, 2001), Pg. 3, LEXIS, Nexis Library, WDPI file;
13 12

involves pay; (d) closed political systems dominated by narrow vested interests; (e) use of public office for private gain by senior officials and political leaders; (f) divergence between the formal and the informal rules governing behavior in the public sector; (g) weak accountability, eroded ethical values, inoperative financial management systems resulting in no formal mechanism to hold public officials accountable for results; (h) low and declining civil service salaries and promotion unconnected to performance and a public service long dominated by patron-client relationships, in which the sharing of bribes and favors has become entrenched; (j) civil services receive inadequate supplies and equipment; (k) adequate legislative controls are lacking (a lack of protection for those who resist corruption and special anti-corruption bodies turned into partisan instruments whose real purpose is not to detect fraud and corruption but to harass political opponents); (l) unenforced rules of conduct and conflict of interest with ineffectual watchdog institutions such as ombudsmen, auditors, and the media or absent; (m) international sources of corruption associated with major projects or equipment purchases.14 b. Economic causes of corruption are closely connected with political ones. They are following: (1) existence of trade restrictions leads to payments to governmental officials in order to get import licenses which are in limited quantity; (2) existence of a big number of government subsidies regulate industrial policy, governmental officials strongly involved in price controls; (3) existence of multiple exchange rate practice and foreign exchange allocation schemes leads to attempts to gain the most advantageous rates by bribing governmental officials; (4) low wages in civil services leads to extortion bribes by civil servants to improve their financial situation; (5) natural resources endowments leads to bribes of governmental official to get the best prices in avoidance of government regulations.15 2. Costs and consequences of corruption.

14
15

Wesberry, supra note 8, at 498. See also QUINONES, supra note 9. Paolo Mauro, Why Worry About Corruption? 4-6 (1997). [Hereinafter Mauro]

Corruption has very strong effect at political, social and economic life of a country where it takes place. The existence of corruption in this case puts some costs and some benefits of political, judicial, and bureaucratic actions to different members of the society.16 In the field of International business transactions the corruption has an impact at both sides: countries where corruption takes place and foreign companies, which are doing or trying to do business in those countries. Correspondly the country is suffering social, political and economic loses and business suffering from commercial loses. Losses of countries could be divided into two big groups: economic and non-economic. a. Non-economic losses are following: (a) it undermines democracy by effecting rights of ordinary people and small entrepreneurs; (b) it causes harm to the environment; (c) it retards development; (d) it erodes the moral fabric of every society; (e) it leads to contempt for the rule of law; (f) it is often connected with trans-border criminal activity, including drug trafficking, organized crime and money laundering. b. Economic loses are following: (1) corruption lowers investment and retards economic growth to significant extent17; (2) it reduces the effectiveness of aid flows through the diversion of funds; (3) it leads to loss of tax revenue and to adverse budgetary consequences; (4) it leads to lower quality of infrastructure and public services; (5) it may distort the composition of government expenditure; 18 (6) distorts the allocation of resources and undermines competition in the market place; (7) it harms consumers and taxpayers, develops a threat to taxpayer confidence; (8) country credit ratings drop; (9) it lessens trade with other countries; lowers growth. c. Commercial loses for the U.S. companies and others because of high level of corruption are following: (A) entrepreneurs suffer higher risks and increased costs of doing business; (B) international
16

See Henry R. Luce, The Role of The World Bank in Controlling Corruption, 29 Law & Pol'y Int'l Bus. 93, 95-97 (1997) for 6 situations where bribery plays role of the distributor of costs and benefits. 17 See Vito Tanzi, Roads to Nowhere:Hhow Corruption in Public Investment Hunts Growth (1998). 18 Mauro, supra note 15, at 6-7.

bribery results in tens of billions of dollars in lost exports for those who by the rules and seek to win contracts through fair competition; it the ability of businesses to operate in a transparent, honest and predictable environment; corruption hurts suppliers of exporters and impedes international trade. It is estimated that US$ 100 billion is paid out in bribes worldwide every year which is equivalent to nearly twice New Zealand's GDP and it may be just the tip of the iceberg.19

III. MEASURES TAKEN TO FIGHT CORRUPTION IN INTERNATIONAL BUSINESS TRANSACTIONS In such conditions of globalizing economy the most important international organizations both political and economic ones started to pay close attention to the problems of corruption. In the period between 1996 and today a lot of legal steps were taken to reduce corruption in international business transactions at international and domestic level. The most important of them will be discussed now. A. Legal Instruments 1. Foreign Corrupt Practices Act. An attorney working for a firm seeking to do business in foreign markets must be familiar with the Foreign Corrupt Practices Act20. (Further FCPA). In general, the FCPA prohibits American companies from making corrupt payments to foreign officials for the purpose of obtaining or keeping business. Congress enacted the FCPA to bring a halt to the bribery of foreign officials and to restore public confidence in the integrity of the American business system. FCPA was amended in 1988 and in 1998.21
19

DONALD J. JOHNSTON, Honesty is the Best Policy, OECD Observer (April 1, 2000), Pg. 3 LEXIS, Nexis Library, IACACC-NO: 64333481. 20 Foreign Corrupt Practices Act of 1977, Pub. L. No. 95-213, 91 Stat.1494. 15 U.S.C.A. 78 (1998) 21 See Barbara Crutchfield George & Kathleen A. Lacey, A Coalition of Industrialized Nations, Dveloping Nations, Multilateral Development Banks , and Non-Governmental Organizations:A Pivotal Complement to Current Anti-Corruption Initiatives, 33 Cornell Intl L.J. 547 (2000) for discussion of the amendments. See also Stuart H. Deming, Foreign Corrupt Practices, 33 Int'l Law. 507 ( Summer, 1999).

The FCPA's basic anti-bribery prohibition makes it unlawful for a firm (as well as any officer, director, employee, or agent of a firm or any stockholder acting on behalf of the firm) to offer, pay, promise to pay (or even to authorize the payment of money, or anything of value, or to authorize any such promise) to any foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person. A similar prohibition applies with respect to payments to a foreign political party or official thereof or candidate for foreign political office. It is prohibited by the act to make bribes directly or by intermediaries. The subject of the act is any individual who is a citizen, national, or resident of the United States, or any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship that has its principal place of business in the United States or that is organized under the laws of a state of the United States, or a territory, possession, or commonwealth of the United States (referred in the Act as domestic concern). It is also unlawful to make a payment to any person, while knowing that all or a portion of the payment will be offered, given, or promised, directly or indirectly, to any foreign official (or foreign political party, candidate, or official) for the purposes of assisting the firm in obtaining or retaining business. "Knowing" includes the concepts of "conscious disregard" or "willful blindness." The Department of Justice is responsible for all criminal enforcement and for civil enforcement of the anti-bribery provisions with respect to domestic concerns. The Securities and Exchange Commission (SEC) is responsible for civil enforcement of the anti-bribery provisions with respect to issuers (issuers of registered securities and issuers required to file periodic reports with the SEC). The Office of General Counsel of the Department of Commerce also answers general questions of U.S. exporters concerning the FCPA's basic requirements and constraints. Violations of FCPA could result in criminal and/or civil penalties. The Criminal penalty for a legal person is a fine of up to $2 million. Penalties for natural persons depend on his/her position.

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Officers, directors, and stockholders are subject to a fine of up to $100,000 and imprisonment for up to five years; employees and agents are subject to a fine of up to $100,000 and imprisonment for up to five years. The firm may not pay fines imposed on individuals. The civil penalties are in the jurisdiction of the Attorney General or the SEC. As appropriate, these agencies may bring a civil action for a fine of up to $10,000 against any firm as well as any officer, director, employee, or agent of a firm, or stockholder acting on behalf of the firm, who violates the antibribery provisions. In addition, in an SEC enforcement action, the court may impose an additional fine not to exceed the greater of the gross amount of the pecuniary gain to the defendant as a result of the violation, or a specified dollar limitation. Aside criminal and civil penalties government can take other actions against violators of the Act. Under guidelines issued by the U.S. Office of Management and Budget, a person or firm found in violation of the FCPA may be barred from doing business with the U.S. government. Indictment alone can lead to suspension of the right to do business with the government. In addition, a person or firm found guilty of violating the FCPA may be ruled ineligible to receive export licenses; the SEC may suspend or bar persons from the securities business and impose civil penalties on persons in the securities business for violations of the FCPA; the Commodity Futures Trading Commission and the Overseas Private Investment Corporation both provide for possible suspension or debarment from agency programs for violation of the FCPA; and a payment made to a foreign government official that is unlawful under the FCPA cannot be deducted under the tax laws as a business expense.22 FCPA has received a lot of criticism. First of all, the FCPA is not ideal as a law: its enforcement is difficult; it is inappropriate considering the structure of todays global market, it constitutes moral imperialism and over reaches into the sovereignty of individual states23. As a result, the FCPA has failed
22

U.S. Department of Commerce. FOREIGN CORRUPT PRACTICES ANTIBRIBERY PROVISIONS, USIA Electronic Journal, Vol. 3, No. 5, November 1998 http://usinfo.state.gov/journals/ites/1198/ijee/factfcpa.htm 23 Bill Shaw, The Foreign Corrupt Practices Act and Progeny: Morally Unassailable, 33 Cornell Intl L.J. 689, 702-706 (2000). See also Id. at 701 for analysis of court practices in FCPA

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to have any serious impact at bribery as well as other domestic laws.24 According to figures cited by David Hess and Thomas Dunfee in their recent Zicklin Center paper, between 1977-95 the Department of Justice prosecuted only 16 bribery cases under the FCPA. A Control Risks Group survey reported last year at the OECD Development Center Washington conference noted that 95 percent of the respondents believed that U.S. companies "regularly" or "nearly always" use "middlemen" to "get round the FCPA."25 It also leads to economic losses by U.S. business, especially in transitional economies 26, which are very difficult to recover.27 For example, in very first year of FCPA existence United States had $ 1 billion in lost trades opportunities28. But for instance, in 1997 it was affected in international contracts worth almost $30 billion by foreign firms, which are not bound by anti-bribery laws in their home jurisdictions.29 It makes harder decisions on doing business in developing countries.30 The FCPA is also blamed for the creation a bifurcated market. While U.S. firms are prohibited from engaging in illicit payments abroad, their foreign competitors can treat bribes as simply other costs of doing business.31 But now the adoption by other countries provisions of OECD Convention will make the competition fairer for the United States firms. Among advantages of the FCPA we can name the knowledge of business partners that U.S. companies are under threat of prosecution in their country and presence of interest in business could

Steven R. Salbu, A Delicate Balance: Legislation, Institutional change, and Transnational Bribery, 33 Cornell Intl L.J. 657, 681 (2000) 25 RONALD BERENBIEM, Tolerance, Compliance And Whistle Blowing, (September 15, 2000) No. 23, Vol. 66, Pg. 726, LEXIS, Nexis Library IAC-ACC-NO: 66122954 26 Jeffery P. Bialos, The Foreign Corrupt Practices Act: coping with corruption in transitional economies, (1997), at 140. [Hereinafter Bialos] 27 See Duane Winsdor and Kathleen A. Getz. Multilateral Cooperation to Combat Corruption: Normative Regimes Despite Mixed Motives and Diverse Values. 33 Cornell Intl L.J. 731 (2000) for discussion. 28 See Id. at 760-762. 29 Stuart E. Eizenstat, Promoting The Rule Of Law And Anti-Corruption In A Globalized Economy, USIA Electronic Journal, (November 1998) Vol. 3, No. 5, at http://usinfo.state.gov/journals/ites/1198/ijee/eizen.htm 30 Id. 2. 31 Bialos, supra note 26, at 138

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reduce costs for bribes for a U.S. company. 32 Other positive influences are: U.S. businesses have reputation as highly ethical ones and such strategy helps developing countries in some concern. 2. The OECD Anti-Bribery Convention. The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions33 was worked out by the Organization for Economic Cooperation and Development (OECD) and signed in Paris on December 17, 1997 by the 29 OECD member countries and five nonmember countries.34 The convention went into effect on February 15, 1999 in 12 countries that had ratified it. As on February 21, 2001 all 34 signatory states have ratified the Convention35 and 31 of them have adopted implementing legislation.36 This instrument obligates the parties to criminalize bribery of foreign public officials, including officials in all branches of government, whether appointed or elected, as well as any person exercising a public function including that of a public agency or enterprise as well bribery of any official or agent of a public international organization. Responsibility of legal persons is proposed as well; wether criminal or civil one depending on the domestic legal system of each party. The Convention requires the parties to take necessary measures, within the framework of their relevant laws and regulations, to prohibit the establishment of off-the-books accounts and similar practices used to bribe foreign public officials or to hide such bribery. Parties are to make bribery of foreign public officials a predicate offense for purposes of money laundering legislation on the same terms as bribery of domestic public officials. Jurisdiction is to be established over offenses that are committed in whole or in part in each party's territory.
32 33

Id. at 116. Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, OECD/DAFFE/IME/BR(97)16/FINAL (Dec. 18, 1997), reprinted in 37 I.L.M. 1 (1998), also available at http://www.oecd.org/daf/nocorruption/20nov1e.htm 34 Argentina, Brazil, Bulgaria, Chile and the Slovak Republic. 35 Steps Taken and Planned Future Actions by each Participating Country to Ratify and Implement the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions at http://www.oecd.org/daf/nocorruption/annex2.htm. (Last visited April 24, 2001). 36 Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Chile, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Slovak Republic, Spain, Sweden, Switzerland, United Kingdom, United States.

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Participating governments pledged to work together to provide legal assistance relating to investigations and proceedings within the scope of the Convention, and to make bribery of foreign public officials an extraditable offense.37 To make sure that signatory countries follow provisions of the Convention, the Working Group on Bribery in International Business Transactions decided to create a mechanism of monitoring whose purpose is to review each country's regulatory system, institutions and measures to enforce the anticorruption principles laid down by the Convention.38 It was decided to do this by means of "rigorous" process of multilateral surveillance upon which the Working Group agreed. The process consists of two phases. Phase I focuses on evaluating whether the legal texts through which participants implement the OECD Convention meet the standard set by the OECD Convention and phase II follows and focuses on the performance of countries that have implemented the OECD Convention.39 The OECD has recommended measures on implementing the OECD Anti-Bribery Convention in the aspect of prevention bribery from its officially supported export credits. Among such measures, the OECD suggests that its members: inform all applicants about the adverse legal consequences of bribery in international business transaction; invite applicants to declare in writing that neither they, nor any agents on their behalf, have been engaged in or will engage in bribery; refuse to provide support, deny payment of claims and demand refunds of any claims determined to have been connected to bribery; and refer all evidence in connection with bribery to appropriate national authorities 40.

On June 27, 2000, (OECD) adopted the OECD Guidelines for Multinational Enterprises, revising the
37

See Commentaries on the Convention on Combating Bribery of Officials in International Business Transactions at http://www.oecd.org/daf/nocorruption/20nov2e.htm (Visited April 24, 2001). 38 Frdric Wehrl, Co-ordinator of Anti-Corruption Outreach Activities, Making Sure That International Anti-Corruption Standards Are Enforced: The OECD Convention Monitoring Mechanism, OECD Global Forum on Fighting Corruption: Safeguarding Integrity Among Justice and Security Officials, Bucharest, Romania, March 30-31 2000 at http:// usinfo.state.gov/topical/econ/integrity/buchor/homepage.htm (Visited April 20, 2001). 39 Stephane Bonifassi, Implementation in France of the OECD Convention on Combating Bribery of Foreign Public Officials, International Enforcement Law Reporter (January, 2001), Vol. 17, No. 1, LEXIS, Nexis, Library, IELR file 40 OECD Members Agree to Prevent Bribery in Export-Credit Transactions, International Enforcement Law Reporter, January, 2001, Vol. 17, No. 1, LEXIS, Nexis, Library, IELR file

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guidelines first published in 1976 and last revised in 1991. They form part of the OECD Declaration on International Investment and Multinational Enterprises (MNEs). The Guidelines are non-binding recommendations to MNEs made by the 33 governments (29 OECD Member countries and 4 nonMember countries), including the U.S. The goal is to help MNEs operate in harmony with government policies and societal expectations. They provide guidance on appropriate business conduct across the full range of MNE activities including standards as to labor, environment, human rights and corruption issues.41 Its important to remember that OECD Convention is a free-standing instrument, open to nonmember countries and its not an instrument of the OECD. The Convention is open to accession by any non-signatory which has become a full participate in the OECD working Group on Bribery by adhering to the Revised Recommendation42 on Combating Bribery in International Business transactions. 3. Inter-American Convention. The Inter-American Convention Against Corruption43 was adopted at the Specialized Conference on Corruption of the Organization of American States (OAS) in Caracas, Venezuela, on March 29, 1996. It was the first instrument of its kind in the world to be negotiated Twenty-one states signed the treaty on the date of its adoption. The Convention entered into force on March 6, 1997. To date, 26 states have signed, and 18 states have deposited their instruments of ratification. The Convention requires that the States Party take specific steps to combat corruption. It imposes an obligation on each State Party to enact such legislation as is necessary to criminalize the acts of corruption specified in the Convention. Such acts include, the solicitation or acceptance of bribes; the
41

Id., see also John R. Schmertz, Jr., and Mike Meier, Esq., OECD adopts revised guidelines for "responsible business conduct" by Multinational Enterprises which recommend standards as to labor, environment, human rights and corruption issues, International Law Update (July, 2000), Vol. 6, No. 7, LEXIS, Nexis Library, ILAWUP file. 42 Carolyn Ervin, OECD Actions to Fight Bribery in International Bsusiness Transaction, at http://magnet.undp.org/Docs/efa/corruption/Chapter10.pdf, (Visited 20 April 2001) 43 Inter-American Convention Against Corruption, OEA/Ser.K/XXXIV.1, CICOR/doc. 14/96 rev.2 (Mar. 26, 1996), reprinted in 35 I.L.M. 724 (1996), also available at http://www.oas.org/

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offering or granting of bribes; any act or omission by a government official to obtain illicit benefits for himself or others; the fraudulent use or concealment of property derived from the above-mentioned acts; and participation in, or association or conspiracy to commit, such acts. One especially noteworthy feature of the Convention is the obligation to criminalize the bribery of foreign officials44. The Convention also includes provisions on certain forms of international cooperation and assistance. These include extradition, mutual legal assistance, and asset seizure and forfeiture. With respect to all of these forms of cooperation, the Convention expressly provides that cooperation will be subject to the limitations of applicable existing treaties, including bilateral ones, and to the domestic law of each country. The Convention also contemplates technical cooperation and exchanges of experiences. Through such cooperation and assistance, the Convention will facilitate the prevention, detection, punishment and eradication of acts of corruption.45 The United States signed it on June 27, 1996 in spite of the fact that existing U.S. law is already sufficient to satisfy the Convention's provisions regarding requirements for legislation, and the other provisions in the Convention are self-executing and will not require implementing legislation. 46 On July 27, 2000, the U.S. Senate gave its advice and consent to the OAS Inter-American Convention against Corruption47 and on 29 September 2000 the United States deposited the instrument of ratification of the Inter-American Convention on Corruption.48 4. GRECO

44 45

See Id. , Article VIII Id. Article XIII and XIV 46 U.S. Department of State, Fact sheet, OAS Inter-American Convention Against Corruption (May 27, 1997) at http://usinfo.state.gov/journals/ites/1198/ijee/factoas.htm (Visited April 20, 2001). 47 John R. Schmertz, Jr., and Mike Meier, Esq., U.S. Senate approves OAS Corruption Convention, International Law Update, August, 2000, Vol. 6, No. 8, LEXIS, Nexis Library, ILAWUP file. 48 Bruce Zagaris, U.S. Issues Guidance on Transactions Involving Proceeds of Foreign Official Corruption, International Enforcement Law Reporter, March, 2001, Vol. 17, No. 3, LEXIS, Nexis, Library, IELR file

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Group of States against Corruption (GRECO) was established by the Resolution (99) 549 of the Committee of Ministers of the Council of Europe, adopted on 1st May 1999.50 According to its Statute,51 the aim of the GRECO is to improve its members' capacity to fight corruption by monitoring the compliance of States with their undertakings in this field. In this way, it will contribute to identifying deficiencies and insufficiencies of national mechanisms against corruption, and to prompting the necessary legislative, institutional and practical reforms in order to better prevent and combat corruption. GRECO is responsible, in particular, for monitoring observance of the Guiding Principles for the Fight against Corruption52 and implementation of the international legal instruments adopted in pursuit of the Program of Action against Corruption (PAC), adopted by the Committee of Ministers of the Council of Europe in 1996. So far three such instruments have been adopted, the Criminal Law Convention on corruption, opened for signature on 27 January 1999, the Civil Law Convention on corruption, adopted in September 1999, opened for signature on 4 November 1999 and Recommendation R (2000) 10 on Codes of conduct for public officials, adopted on 11 May 2000.53 The U.S. has joined the GRECO. It declared that it will apply the "Guiding Principles for the Fight Against Corruption" adopted by the Committee of Ministers of the Council of Europe on November 6, 1997 (Resolution (97)24). Twenty-five states have now joined the GRECO agreement.54 5. Criminal Law Convention on Corruption

49

Resolution (99) 5 at http://www.greco.coe.int/ 50 Representatives of following countries: Belgium, Bulgaria, Cyprus, Estonia, Finland, France, Germany, Greece, Iceland, Ireland, Lithuania, Luxembourg, Romania, Slovakia, Slovenia, Spain, Sweden 51 Statute of the GRECO, Appendix to the Resolution (99) 5 at http://www.greco.coe.int/ 52 Resolution (97) 24 20 Guiding Principles for the Fight against Corruption, adopted by the Committee of Ministers at its 101st meeting on 6 November 1997 at http://www.greco.coe.int/ 53 Recommendation R (2000) 10 on Codes of conduct for public officials at http://www.greco.coe.int/ 54 John R. Schmertz, Jr., and Mike Meier, Esq., U.S. joins Council of Europe's GRECO agreement, International Law Update, October, 2000 Vol. 6, No10, LEXIS, Nexis Library, ILAWUP file.

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Council of Europe Criminal Law Convention on Corruption55 was open for signature by the member States of the Council of Europe and the non-member States, which have participated in its elaboration, in Strasbourg, on 27 January 1999. The Convention will enter into force after the deposit of 14 instruments of ratification. Today 30 countries have signed and 956 have ratified the Convention57. The Criminal Law Convention on Corruption is aimed at coordinating criminalization of a large number of corrupt practices. It also provides for complementary criminal law measures and for improved international co-operation in the prosecution of corruption offences. It covers the following forms of corrupt behavior normally considered as specific types of corruption: active and passive bribery of domestic and foreign public officials; active and passive bribery of national and foreign parliamentarians and of members of international parliamentary assemblies; active and passive bribery in the private sector; active and passive bribery of international civil servants; active and passive bribery of domestic, foreign and international judges and officials of international courts; active and passive trading in influence; money-laundering of proceeds from corruption offences; accounting offences (invoices, accounting documents, etc.) connected with corruption offences. The Convention also incorporates provisions concerning aiding and abetting, immunity, criteria for determining the jurisdiction of States, liability of legal persons, the setting up of specialized anticorruption bodies, protection of persons collaborating with investigating or prosecuting authorities, gathering of evidence and confiscation of proceeds. It provides for enhanced international co-operation (mutual assistance, extradition and the provision of information) in the investigation and prosecution of corruption offences.

55

Criminal Law Convention on Corruption, Jan.27, 1999, Europ. T.S. No. 173., also available http://conventions.coe.int/treaty/en/Treaties/Html/173.htm 56 The former Yugoslav Republic of Macedonia, Slovenia, Slovakia, Latvia, Hungary, Denmark, Czech Republic, Cyprus, Croatia. 57 Criminal Law Convention on Corruption, Chart of signatures and ratifications, at http://conventions.coe.int/treaty/EN/cadreprincipal.htm

at

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The Convention is open to the accession of non-member States. As soon as the Covention is ratified, States, which do not already belong to GRECO, will automatically become members.58 United States signed the Council of Europe Criminal Law Convention on Corruption (10 October 2000) as well as the GRECO.59 6. Civil Law Convention on Corruption Council of Europe Civil Convention on Corruption was opened for signature by the member States of the Council of Europe, the non-member States, which have participated in its elaboration as well as the European Community, in Strasbourg, on 4 November 199960. The Convention will enter into force after the deposit of 14 instruments of ratifications. For today 24 countries signed and 3 countries61 have ratified the Convention.62 This Convention is the first attempt to define common international rules in the field of civil law and corruption. It requires Contracting Parties to provide in their domestic law "for effective remedies for persons who have suffered damage as a result of acts of corruption, to enable them to defend their rights and interests, including the possibility of obtaining compensation for damage"63. The Convention is divided into three chapters, they cover: measures to be taken at national level, international co-operation and monitoring of implementation and final clauses. In ratifying the Convention, the States undertake to incorporate its principles and rules into their domestic law, taking into account their own particular circumstances.

58

Criminal Law Convention on Corruption, Explanatory Report, at http://conventions.coe.int/treaty/EN/cadreprincipal.htm Bruce Zagaris, U.S. Issues Guidance on Transactions Involving Proceeds of Foreign Official Corruption, International Enforcement Law Reporter, March, 2001,Vol. 17, No. 3, LEXIS, Nexis, Library, IELR file
59 60

Civil Law Convention on Corruption , Nov. 4, 1999, Europ. T.S. No.174, also available at http://conventions.coe.int/treaty/en/Treaties/Html/174.htm, [hereinafter Civil Law Convention] 61 Estonia, Bulgaria and Albania 62 Civil Law Convention on Corruption, Chart of signatures and ratifications, at http://conventions.coe.int/treaty/EN/cadreprincipal.htm 63 See Civil Law Convention, supra note 60, Article 1.

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The Convention deals with: compensation for damage; liability (including State liability for acts of corruption committed by public officials); contributory negligence: reduction or disallowance of compensation, depending on the circumstances; validity of contracts; protection of employees who report corruption; clarity and accuracy of accounts and audits; acquisition of evidence; court orders to preserve the assets necessary for the execution of the final judgment and for the maintenance of the status quo pending resolution of the points at issue; international co-operation. The Group of States against Corruption (GRECO) will monitor commitments entered into under the Convention by the States Party. The Convention is open to Council of Europe member States, to nonmember States, which took part in drawing it up64 as well as to the European Community. B. Measures Taken by International Organizations 1. United Nations. Today, the three most important U.N. documents were drafted to deal with issues of corruption: United Nations Declaration against Corruption and Bribery in International Commercial Transactions 65, International Code of Conduct for Public Officials66, and Code of Conduct for Law enforcement Officials67. The Draft United Nations Convention against Transnational Organized Crime, in its article 4 ter68 also envisages the criminalization of corruption when an organized criminal group is involved. The Convention includes following acts: corrupt activities involving an international civil servant, a foreign public official, a judge or other official of an international court. The draft convention is aimed at corrupt activities towards international officials. Additional international measures were proposed for further

64 65

Belarus, Bosnia and Herzegovina, Canada, the Holy See, Japan, Mexico and the United States of America United Nations Declaration Against Corruption and Bribery in International Commercial Transactions, U.N. GAOR, 51st Sess., U.N. Doc. A/RES/51/191 (Dec. 16, 1996) 66 United Nations International Code of Conduct for Public Officials, U.N. Doc A/RES/51/59 (Dec.12, 1996) 67 Code of Conduct for Law enforcement Officials General Assembly Resolution, U.N.Doc A/34/196 of (Dec. 17 1979) 68 Draft United Nations Convention against Transnational Organized Crime, U.N. Doc. A/AC.254/4/REV.6

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combating corruption the 10th U.N. Congress69 included develop, ratify and incorporate international instruments to encourage strengthen anti-corruption programs at the national level and Consider the development of a comprehensive United Nations convention against corruption70. 2. European Union A number of measures have been taken by European Union as well. On May 21, 1997, the European Commission adopted a Communication to the Council and to the European Parliament on a Union Policy Against Corruption71. The Communication provides member states with a consistent and coherent policy on corruption in international trade and commerce well as in other pertinent area. But the Communication does not have legal effect of corruption. The Convention criminalizes bribery of E.U. officials as well public officials of E.U. member states, but does not concern transnational bribery with foreign officials of countries that are not members of the European Union.72 The Convention on the Fight against Corruption involving Officials of the European Community or Officials of Member States of the European Union73, adopted on May 26 1997, criminalized active and passive corruption of officials even where financial damage to the Union was not at issue. The Joint Action of 22 December 1998 adopted by the Council on the Basis of article K.3 of the Treaty on European Union, on corruption in the private sector, constituted another important instrument. 74 3. The World Bank
69

10th United Nations Congress on the Prevention of Crime and The Treatment of Offenders, Vienna, 10-17 April 2000, International cooperation in combating transnational rime: new challenges in the twenty-first century. Background paper for the workshop on combating corruption prepared by the United Nations Interregional Crime and Justice Research Institute. U.N. DOC A/conf.187/9, available at http://www.uncjin.org/Documents/10thcongress/10thcongress.html 70 Id. 71 European Union, Resolution on the communication from the Commission to the Council and the European Parliament on a Union policy against corruption, (May 21, 1997), COS/1997/2116, also available at http://wwwdb.europarl.eu.int/ 72 Convention on the Fight Against Corruption Involving Officials of the European Communities or Officials of Member States of the European Union, May 26 (1997), O.J.C. 195, 26.5.1997 73 Id. 74 See, European Union, Joint Action of 22 December 1998 Adopted by the Council on the Basis of Article K.3 of the Treaty on European Union, on Corruption in the Private Sector, 1998 O.J. (L358), also available at http://www.consilium.eu.int/ejn/vol_b/5_actions_communes/corruption/13909en.html

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The World Bank started pay attention at the problem of corruption, since 1995 with the appointment of James Wolfensohn as the president. At the 1996 meeting, Wolfensohn made combating bribery a top priority. In 1997, with help of Transparency International, the bank adopted a comprehensive program, including strong controls to prevent bribery on World Bank-financed projects and assistance to governments to promote reforms.75 It was decided that bank will fight corruption by following means: (a) preventing fraud and corruption in World Bank-financed projects; (b) assisting countries fight corruption, if and when they request it; (c) seriously considering corruption in the World Bank's internal planning, in the design of its projects and in its analysis and policy dialogue with countries which lead to agreeing upon strategies; (d) supporting international efforts against corruption.76 As a practical matter the World Banks approach has been to support these efforts by: (1) helping coordinate both cross-border and in-country anti-corruption efforts; (2) focusing the Banks efforts on areas of its comparative advantage; (3) forming strategic collaborations with other organizations; (4) gaining and disseminating knowledge about corruption internationally, and (5) explaining and developing Bank policy. So far the Bank has participated in a number of international anti-corruption efforts. For over two years, the Bank has participated in the OECDs Working Group on Bribery in International Business Transactions and contributed to the formulation of this Convention. It collaborates closely with the other Multi-lateral Development Banks in the MDB Working Group on Governance, Corruption and Capacity Building. It maintains observer status at Interpol conferences and on the Financial Action Task Force on Money Laundering (FATF), in order to educate itself on international crime and money laundering. At the regional level the Bank partners with organizations such as the Organization of American States (OAS) and the Global Coalition for Africa. The Bank has also
75

John Brademas and Fritz Heimann, Tackling International Corruption; No Longer Taboo, Foreign Affairs, October, 1998, Pg. 17, LEXIS, Nexis Library in MEGS file. [hereinafter Brademas and Heimann] 76 Wesberry, supra note 8, at 501-502.

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recognized the important role played by international NGOs such as Transparency International. Most recently the Bank co-sponsored a number of Anti-Corruption Conferences and workshops. 77 It has also developed Country Assistance Strategy, which deals with discussion of countrys governance conditions including public sector institutional reforms as well as an assessment of the corruption risks to Bank projects before beginning of its operations; created Economic and Sector Work (ESW) what is the vast range of evaluative Bank reports on economic and sectoral issues at the country level; shifted obligations to Operations Evaluations Department to carry out an evaluation of the Banks anti-corruption program in 2000. It was promoting training programs, research and analysis as well as the development of new diagnostic tools, Anti-Corruption Knowledge Management System, and the website78. 4. International Monetary Fond The IMF, going beyond its traditional focus on monetary and fiscal policy, is emphasizing the need for transparency and other steps to curb corruption.79 On August 4, 1997, the IMF Executive Board released guidelines, which instructed IMF staff to consider corruption and accountability issues in its relations with borrowing countries. The IMF guidelines are worded in the language of economists, which makes them difficult to understand for laypersons. The Guidelines do, however, officially recognize the problem of corruption for the first time. More importantly, they call the attention of IMF staff to the threat that corruption poses to international lending for development. The IMF guidelines specifically seek to provoke greater attention to involvement in governance issues by advocating policies and development of institutions and administrative systems with aim to eliminate opportunity for corruption and fraud. It also expresses great concern that corruption issues be addressed only based on economic

77

The World Bank Group, Supporting International Efforts to Reduce Corruption, at http://www1.worldbank.org/publicsector/anticorrupt/supporting.htm (Visited April 20, 2001). 78 The World Bank Group, Mainstreaming Anti-Corruption RESULTS SO FAR at http://www1.worldbank.org/publicsector/anticorrupt/resultsmainstreaming.htm (Visited April 20, 2001). 79 Brademas and Heimann, supra note 75

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considerations within its mandate prohibiting IMF adopt the role of an investigative agency or guardian of financial integrity in member countries. 80 5. International Chamber of Commerce The International Chamber of Commerce in Paris plays an important role in encouraging the international business community to become active in fighting corruption. The Chamber's focus is on improving corporate self-regulation programs. The biggest Chambers achievement is the "Rules of Conduct to Combat Extortion and Bribery". 81 For the first time the ICC issued its Rules of Conduct to Combat Extortion and Bribery in International Business Transactions in 1977 establishing a set of guidelines to promote high standards of corporate conduct. On 26 March 1996, the ICC's Executive Board updated the Rules82 and expanded them to cover a broader range of corrupt practices. If the 1977 Rules only prohibited extortion and bribery in connection with obtaining or retaining business; the new Rules prohibit extortion and bribery for any purpose. Thus, extortion and bribery in judicial proceedings, in tax matters, in environmental and other regulatory cases or in legislative proceedings are now covered by the Rules. In 1999 the Rules were revised again. The Rules deal with such issues as payments to sales agents and other intermediaries, business entertainment and gifts, and political contributions. They cover not only bribery of public officials but bribery within the private sector as well. The basic approach of the Rules is the need for action by international organizations, governments and by enterprises, nationally and internationally, to meet the challenging goal of greater transparency in international trade. The 1996 version consisted of two parts. Part I Recommendations to Governments and International Organizations contains such provisions as need for WTOs active role, because bribery and extortion are clearly important factors distorting
80 81

Wesberry, supra note 8, at 515-516 International Chamber of Commerce, Rules of Conduct to Combat Extortion and Bribery (revised) at http://www.iccwbo.org/home/statements_rules/rules/1999/briberydoc99.asp, (Visited April 20, 2001), [hereinafter revised Riles] 82 International Chamber of Commerce, Rules of Conduct to Combat Extortion and Bribery at http://www.iccwbo.org/home/statements_rules/rules/1996/1996/briberydoc.asp, (Visited April 20, 2001).

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international trade; additional efforts should be taken to deal more effectively with extortion by foreign public officials. To that end, national governments must strengthen their enforcement of laws prohibiting the solicitation and receipt of bribes, as well as the payment of bribes; to regulate political contributions by enterprises and to ensure that they are publicly recorded; to stimulate cooperation between governments and world business. Part II Rules of Conduct to Combat Extortion and Bribery sets forth the Rules of Conduct recommended by ICC for voluntary application by enterprises. New emphasis is placed on implementing mechanisms within companies to enforce corporate codes of conduct. Revised 1999 version of the Rules83 was amended by Part III ICC Follow-up and Promotion of the Rules. The Standing Committee on Extortion and Bribery is established with the aim to promote and monitor the widest possible acceptance and application of the Rules of Conduct. Its principal purpose will be to stimulate action by enterprises and business organizations in support of self-regulation, as an important factor in effectively combating extortion and bribery. Now the Chamber is preparing a manual to assist companies in complying with the Rules and with the OECD convention84. ICC is currently working to produce further rules to tackle 'private-toprivate' extortion and bribery, as opposed to corrupt practices between private and governmental entities85. 6. World Trade Organization WTO has also recently mobilized its efforts against corruption. So far the only one legal action was taken by the WTO: the 1996 WTO Ministerial Declaration86 which included a provision establishing the Transparency in Government Procurement working Group to study transparency in government

83 84

Revised Rules, supra note 81 Brademas and Heimann, supra note 75 85 ICC statement on behalf of world business to the Heads of State and Government attending the Cologne Summit at http://www.iccwbo.org/home/statements_rules/statements/1999/g7_statement.asp (Visited April 20, 2001). 86 See WTO Singapore Ministerial Declaration (Dec. 13 1996) at http://www.wto.org/english/thewto_e/minist_e/min96_e/wtodec.htm (last updated 18/10/2000)

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procurement practices. In 1999 the Group has issued its first report87. Within the WTO the most feasible possibility is to revise the Agreement on Government Procurement88, focusing on anticorruption aspects. This agreement entered in force on January 1, 1996, but only a few courtiers, mostly in industrial world, have adopted its provisions. The U.S. and multinational organizations demand more actions from the WTO. 7. Transparency International Transparency International is a non-governmental organization established in 1993 in Berlin. It has former governmental officials and business people as its members. The main aim of this organization is to increase governments accountability and curbing both international and national corruption. 89 The most important actions by the Transparency International are information gathering and raising public awareness. For example, it publishes a Corruption Perceptions Index90 that scores countries on ten-point scale, a score of ten indicating a highly clean country and zero indicating a highly corrupt country. 91 TI also publishes a Bribery Index of Leading Exporting Nations92 to uncover the sources of bribery by scoring countries on a ten-point scale with a score of ten indicating negligible bribery and zero indicating very high levels of bribery.93

IV. HOW TO DO BUSINESS IN HIGHLY CORRUPTED COUNTRIES From previous text, the prospective of doing business in developing countries looks scary. On the other hand, recent legislative and other measures taken at the international level to reduce corruption in
87

See WTO Report (1999) to the General Council (Oct.12, 1999) at http://www.wto.org/english/tratop_e/grpoc_e/tran99_e.htm, (Visited April 20, 2001). 88 See WTO Text of the Agreement on Government Procurement at http://www.wto.org/english/tratop_e/gproc_e/agrmnt_e.htm (Visited April 20, 2001). 89 Transparency International, Welcome! at http://www.transperency.de/welcome.html (visited 20 April 2001) 90 See Transparency International Corruption Perception Index/Bribe Payers Index at http://www.transparency.de/documents/cpi/index.html (Visited April 20, 2001) 91 See Id. 92 See Id. 93 See Id.

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international business transactions gives some hope for better. I have to admit that a lot of big corporations which are doing business in highly corrupted countries started to do it long time ago in more difficult conditions and succeeded. The secret of this success was adoption of good risk management policy. One of the examples of such a policy could be so called Sullivan Principles which were proposed and developed by Leon Sullivan who was a member of the board of directors of General Motors, back in 1977. The original idea was to help to promote racial equality in South Africa through the influence of large corporations.94 The original set of six principles95 was a voluntary code designed to guide the practices of U.S. corporations doing business in South Africa. Based on Global Sullivan principles, so-called C2 (Combating Corruption) principles were developed for international corporations. Under such principles corporations would: (a) establish a clear policy against employees paying bribes and kickbacks; (b) train and discipline employees, (c) accurately record and report transactions that are independently audited; (d) require agents and suppliers to affirm that they have not engaged in improper payments; (e) establish a monitoring system; (f) report solicitation of payments to a group such as Transparency International, and (g) protect employees who similarly make such reports.96 Such principles could be broader or narrower but to have an impact on the practice of corruption, any set of principles must (1) emphasize transparency; (2) provide guidance concerning specific practices associated with paying bribes; (3) be relevant to organizational environment; (4) identify itself with and be supported by an independent entity such as not-governmental organization or an academic center, and (5) be capable of monitoring and assessment by external, independent entities, such as social and financial auditors.97 It is established that approximately 65 to 85
94

David Hass and Thomas W. Dunfee. Fighting Corruption: A Principled Approach; The C2 Principles (Combating Corruption), 33 Cornell Intl L.J. 593, 616 (2000). [Hereinafter Hass and Dunfee] 95 See Id. n.144. at 620
2 96

Timothy L. Fort & James J. Noone, Gifts, bribes, and Exchange: Relationships in Non-Market Economies and Lessons for Pax E-Commercia, 33 Cornell Intl L.J. 515, 542 (2000). See also Hass and Dunfee supra note 94 at 621-22 for whole list of the Principles 97 Hass and Dunfee, supra note 94, at 618.

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% of all U.S. companies have established ethical codes or compliance programs designed to prevent violations of the FCPA.98 Aside ethic codes, there are some other measures could be taken to mitigate risks of corruption it could be: use of know your partner strategy, include provisions concerning FCPA for joint venture or employment contract; compliance program which require the joint venture to establish an internal control program. The key provisions of the Compliance program are: procedures; record keeping and control.99 Some practical advices how to organized business in country with high level of corruption do exist as well. One of them is how to do business in Russia, based on the Principles and analysis of the situation in the country, which to my mind could be used in any developing country in the world. The very first advice will be: never give bribes. One time is enough to get such a reputation and then requests for payments will rise like a snowball what does not make life easier. Next suggestion is to not to be alone. Its very important to cooperate with other U.S. or West European corporations by sharing experience in dealing with extortion of bribes and similar activity. It is also important to hire private security firms for protection of premises and/or executives and never limit itself to one security company.100 Next step is to formulate and publicly promulgate and follow a set of guiding principles for operating in Russia. Signatories can go on record that they oppose working with corrupt elements. The contents of the code need not be elaborate and, in fact, may be relatively simple but should contain main provisions, discussed above. By avoiding bribery and giving publicity to anti-corruption measures taken against corruption a company will inform Russians that U.S. companies do not consider corruption part
98 99

senior management commitment;

Bialos, supra note 26, at 89. Bialos, supra note 26, at 90-95. 100 In May 1998, in Southampton, UK, I took part in conference, which was devoted to problems of doing business in Commonwealth of Independent States. Representatives of two big corporations: Carlsbery and British and American Tobacco shared their experience. Carlsbery representative, which has a factory in Russia suggested to use help of some private security services and representative of British and American Tobacco, which has some factories in Ukraine, had a good experience in dealing with State Guard Service which is part of the Ministry of Interior.

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of the way of doing business. On the other hand publicity will lend support to attempts by government reformers who wish to legislate and enforce legislation against corruption. Companies that wish to engage in business with honest Russian entrepreneurs will become known101 as well as honest Russian entrepreneurs. This could be very helpful in future.

V. CONCLUSIONS From this paper we can conclude first, that corruption is not just domestic issue of developing countries but a global one too. In conditions of the economic globalization the corruption affects everybody in different aspects. Second, international community has recognized global character and threat of corruption by and number of measures were taken both at international and domestic levels. International political and economic organizations have developed and are developing rules and recommendations about reducing corruption in international business transaction. The United States plays leading role within those organizations in this field. Third, level of corruption in developing countries is really high but it does not mean that its impossible to do business in those countries. Knowledge of international and domestic legal instruments and local custom, use of code of ethics and wise risk management policies could make it possible and successful to do business in any developing country and with avoiding conflicts with FCPA. And forth, provided legal instruments and measures are only rudimentary steps towards reducing corruption in international business transactions. There is a lot of to be done 102 and the fight is going on. The recent measures taken at the international level to combat corruption are: Global Organization of Parliamentarians Against Corruption was created with very strong support of Canada. It
101

Richard T. De George, "Sullivan-type" Principles for U.S. Multinationals in Emerging Economies, 18 U. Pa. J. Int'l Econ. L. 1193, 1206 (1997). 102 See Beverley Earle, Bribery and Corruption in Eastern Europe, the Baltic States, and the Commonwealth of Independent States: What is to be done? 33 Cornell Intl L.J. 483, 509-512 (2000). The author suggests four directions to deal with corruption in future: legal, political, economic, technological and ethical.

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has a chapter in Africa and others are in the works in Europe, India, South-East Asia has already received support from Latin American and Caribbean parliamentarians to join it. It would promote issues such as open and transparent government, press freedom, independent prosecutors and judiciaries, limits on discretionary powers of bureaucrats and open appeals processes.103 In France Investors and lenders demand high standards of corporate governance free of corruption.104 On January 16, 2001, the U.S. Department of Treasury, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the Department of State announced the issuance of new guidance to help U.S. financial institutions avoid transactions that may involve the proceeds of foreign official corruption.105

103

Canada promoting global organization to fight political corruption, Canadian Press Newswire March 8, 2001, LEXIS, Nexis Library CBCA-ACC-NO: 5064262. 104 International Chamber of Commerce, Investors demand good corporate governance free of corruption (February, 2000) at http://www.iccwbo.org/home/news_archives/2000/investor_demand.asp (Visited April 20, 2001). 105 Bruce Zagaris, U.S. Issues Guidance on Transactions Involving Proceeds of Foreign Official Corruption, International Enforcement Law Reporter, March, 2001, Vol. 17, No. 3, LEXIS, Nexis, Library, IELR file.

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