In Foreign Bribery, Check the Big Boss

The world’s multinationals are continuing to pay the preponderance of foreign bribes, usually with the full knowledge of senior management, according to a new 51-page analysis of the cost of bribery and corruption, published earlier this week, thus making a myth of the so-called rogue employee,

Most of the cases studied were settled, usually with a civil or criminal fine, the OECD investigators found, with only about 80 people going to jail – a clear requirement if top management is actually going to be subdued into putting a stop to corporate corruption, although one US congressman did go to jail for 13 years, one of the few cases cited in the document.

Whistleblower reports and media coverage play a minor role despite the publicity they get, with whistleblowers sparkling only 2 percent of probes, and the media about 5 percent. Usually internal audits [31 percent of cases] and due diligence during mergers and acquisition s [28 percent] turned up the majority of offenses

Analyzing more than 400 cases worldwide, the report found that surprisingly, bribes analyzed are usually paid in the advanced economies to win contracts from state-owned or controlled companies, rather than in developing ones, with both the bribe payers and those who take them from wealthy countries. The statistics were based on analysis of information contained in enforcement actions against 263 individuals and 164 entities between 1999 and June 1 this year.

Usually bribes amount to about 10 percent of transaction value, giving rise to so many officials around the world who are known behind their backs as “Mr 10 percent.” Those in SOEs taking bribes ranged from CEOs or presidents to top management as well as lower-level employees, who take 80 percent of the total, the report said.

Almost two thirds of cases occurred in four sectors – extractive [19 percent], construction [15 percent], transportation and storage [15 percent] and information and communications (10 percent]. Bribes were promised, offered or given most frequently to employees of state-owned enterprises [27 percent], followed by customs officials [11 percent], health officials [7 percent] and defense officials [6 percent]. Heads of state and ministers were bribed in 5 percent of cases but received 11 percent of the money.

Although the report doesn’t supply details of the cases, Asian countries were well represented in the sample, with the Philippines, China, Taipei, Indonesia, Malaysia, Thailand, Vietnam, Myanmar, Mongolia and Bangladesh on the list. Germany has sanctioned individuals and entities for the foreign bribery offenses in connection with 26 separate schemes; Korea in connection with 11; and Italy, Switzerland and the United Kingdom in connection with 6 each.

Defense companies have traditionally been big in handing out kickbacks to foreign officials. DCN, the French maritime defense company, has been embroiled in a vast scandal for more than a decade that is still being investigated for handing out massive bribes in Pakistan, Taiwan, Chile, India, Malaysia and other companies to win contracts for submarines and other vessels, allegedly with the connivance of officials all the way up to then-foreign minister Alain Juppe although DCN was hardly alone.

Although the OECD had been developing the convention on bribery since 1989, it finally came into force in 1999 and didn’t really gather steam until well into the next decade. Countries that have signed it are required to put in place legislation that criminalizes the act of bribing foreign public officials. So far, only 41 of the world’s 190-odd governments have signed it. The Convention doesn’t seem to have slowed the practice much. The OECD report indicates that 390 cases are under investigation now in 24 countries.

“Corruption undermines growth and development. The corrupt must be brought to justice,” said OECD Secretary-General Angel Gurría. “The prevention of business crime should be at the center of corporate governance. At the same time, public procurement needs to become synonymous with integrity, transparency and accountability.”

The time needed to conclude cases has increased over time, from around two years on average for cases concluded in 1999 to just over seven today, the report says, which “may reflect the increasing sophistication of bribers, the complexity for law enforcement agencies to investigate cases in several countries or that companies and individuals are less willing to settle than in the past.”

The US has had its Foreign Corrupt Practices Act in place since the mid-1970s and executives have complained about it privately ever since, saying the law has long put US companies at a disadvantage when seeking overseas contracts or making investments. It was implemented as a result of a spectacular probe by the US Securities and Exchange Commission that shocked the country, finding that more than 400 US multinationals acknowledged making questionable or illegal payments of more than US$300 million to bribe politicians, parties or government officials. The probe blew up after it was discovered that the aerospace company Lockheed had paid foreign officials in Japan to favor its products. Chiquita Brands, in what became known as the Bananagate scandal, bribed the president of Honduras to cut its corporate taxes.