Blog on Bribery

The latest allegations of bribery have been leveled at Walmarts Marts Mexican operations, charging it with covering up illegal proceedings, thus embroiling the company in scandal. More recently, reports circulated that

Walmart, a committee member of the U.S. Chamber of Commerce, had been lobbying the government to amend the Foreign Corrupt Practices Act to reduce liability for companies that bribe foreign officials and exempt companies, such as Walmart itself, that have their own compliance programs. On this last point, lobbyists argue that if internal rules exist, no matter how insubstantial, company executives are off the hook should bribery be uncovered on their watch.

Corruption corrodes the political system and involves a massive transfer of wealth from poor to rich corporations and venal politicians. It also adds an unseen tax, as officials cream their take from major infrastructure projects or privatizations. The World Bank estimates that bribery is a trillion dollar business.

The most lucrative sources of bribes are large capital programsbig dams, big highways, new power stations, massive building programs, and so on because they provide ample opportunities to inflate prices, with plump commissions flowing back into the pockets of politicians and bureaucrats. As a result, many struggling countries are burdened with expensive white elephants and debts that will cripple its economy for decades to come. In

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New Globalists

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the end, the poor pays through increased taxes they can ill afford and inflated prices for basic services, like electricity and water.

Corporations involved in bribery are the big winners, just as competitors who play by the rules are the big losers. It robs them of contracts they would have otherwise won by tendering the lowest quote. Consequently, ruthless corporations thrive while good ones struggle or even go under.

Politicians in developing countries are no less complicit. They create impenetrable rules for businesses that can only be navigated if corporate executives are willing to oil the wheels, which invariably translate into commissions for helpful bureaucrats and politicians amenable to showing the way through the legislative morass.

Globalization has made bribery easier to get away with. Bribes are often disguised as commissions to intermediaries who hand over the cash or transfer the funds into Swiss bank accounts where corrupt politicians can keep their identities secret. These intermediaries can be agents, shelf companies, or subsidiaries located in Third World countries, making tracking money transfers difficult. Here we glimpse the sordid back-alleys of globalization, where deals are done and crimes are committed with every expectation that they will go undetected.

Until recently, bribery was not just tolerated by governments but also rewarded. For example, bribes were treated as normal business expense and allowed to be claimed as tax deductions.

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Mainly through the efforts of the US, the international community was shamed into taking action to outlaw bribery, albeit reluctantly. In 1997, the OECD adopted an anti-bribery treaty, and in 2005, the United Nations followed suit with its Convention against Corruption.

Disappointingly, even though these two major treaties are now on the books, the situation has not noticeably improved, and relatively few prosecutions have trickled through the courts. To understand why these treaties have failed, we need to look at how the political dynamics play out.

Implementing these conventions by creating local regulations is far from straightforward. As much as countries accept the evil of bribery, there is a strong temptation to game the system. They know that if they crib, they can give their corporations a competitive advantage. There is a lot of money at stake. With military equipment, construction, and aerospace industries fighting for billion dollar contracts, adding a few millions in kickbacks is awfully tempting.

Cover-ups are usually the order of the day, unless the scandal hits the newspapers, as it has in the case of Walmart. In 2009, Transparency International concluded that the global financial crisis had increased the risk of backsliding, as competition for decreasing numbers of orders intensifies. Rather than being able to report progress, the account ended

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by speculating that there was a distinct probability that enforcement of the Convention could go into reverse.

And they were right. Behind the scenes, lobbyists were at work, ultimately getting Forbes magazine to take up their cause. In a 2010 article, the author argued that the only beneficiaries of the government's crusade seemed to be white-collar defense lawyers.

What are these prosecutors accomplishing? Maybe they are fighting for truth and justice. Maybe, that is, it makes sense for the U.S. to hold its corporations to a higher standard of integrity than the French or Chinese outfits they compete against when trying to win business abroad. What the Walmart case reveals is that the US government, which has been at the forefront pursuing strong international bribery laws, is being stoutly lobbied to dilute its bribery laws. One can only hope that this lobbying will cease in the face of the Walmart revelations. Sadly, I suspect it will renew the efforts of business lobbyists to ensure that it is harder to uncover and prosecute bribery in the future.

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New Globalists

Harry Blutstein 2012