Businesses Combat Corrupt Deals

Businesses Combat Corrupt Deals

By Neil Munro
Staff Writer

SAN FRANCISCO - International groups and U.S. corporations are pushing to suppress official and corporate corruption in many countries including China, Indonesia and Malaysia where U.S. companies are marketing high-tech goods and services.

"We see it every day of the week in many, many countries," including China and the United States, said Robert Timpson, president of IBM.'s Asia Pacific business unit in Tokyo.

Because IBM refuses to offer bribes, "we sometimes lose some business," he said, adding that "our salesmen think we are crazy on a particular deal ... but it has served us well long term."

The anti-corruption campaign took a step forward when 34 countries, including South Korea and Japan, inked a deal Nov. 21 outlawing bribery of politicians and civil servants.

CORRUPTION PERCEPTION INDEX 1997

This chart combines several studies to show how executives perceive the incidence of official and corporate corruption in 52 countries around the world. The chart, which awards the highest grades to the least corrupt countries, was prepared by Transparency International, based in Berlin, Germany.

1. Denmark 9.94
5. Canada 9.10
9. Singapore 8.66
16. United States 7.61
18. Hong Kong 7.28
21. Japan 6.57
31. Taiwan 5.02
32. Malaysia 5.01
34. South Korea 4.29
36. Brazil 3.56
39. Thailand 3.06
40. Philippines 3.05
41. China 2.88
43. Vietnam 2.79
46. Indonesia 2.72
47. Mexico 2.66
49. Russia 2.27
52. Nigeria 1.76
However, the deal does not bar all bribery, nor require punishment of bribe-takers, nor require countries to eliminate tax write-offs for bribes. The treaty, brokered by the Paris-based Organization for Economic Cooperation and Development, will enter force in early 1999.

Since Congress passed the Foreign Corrupt Practices Act of 1977, U.S. companies have been forbidden from offering bribes, nor can they take tax deductions for the cost of bribes.

The OECD agreement follows growing pressure from Charlene Barshefsky, the United States' chief trade negotiator; officials from the International Monetary Fund; and James Wolfensohn, president of the Washington-based World Bank.

"Bribery is common in international business transactions involving developing country governments, including government procurement," according to a statement from the bank, which has recently tightened up supervision of programs that it funds.

"If a government is unwilling to take action [against corruption] ... then the Bank Group must curtail its level of support to that country. Corruption, by definition, is exclusive; it promotes the interests of the few over the many," Wolfensohn said at a meeting in Hong Kong.

Because "you get James Wolfensohn beating everyone up, and Charlene Barshefsky making it a major trade issue ... [business] is getting cleaner," said Timpson.

Eight Asian countries - Taiwan, Malaysia, South Korea, Thailand, Philippines, China, Vietnam and Indonesia - are among the 22 most corrupt countries of a 52-country study prepared by Transparency International, a multinational organization based in Berlin.

The June 1997 survey, which combined surveys from several research firms, also identified Singapore as one of the least corrupt countries, well ahead of Ireland, Germany and the United States.

In practice, corruption drives up the cost of business as much as 20 percent, sharply cutting foreign investment, according to Shang-Jin Wei, an associate professor at Harvard University's Kennedy School of Government.

Many of the Asian countries cited in the study are spending heavily on information technology investments, including desktops, Internet links and phone networks. Asia-Pacific governments from China to India are expected to spend $25 billion on information technology by 2002, according to an estimate prepared by G2R Inc., Mountain View, Calif.

U.S. companies win perhaps 10 percent of the value of these government programs, according to some estimates.

Corruption can derail pending contracts and shatter corporate alliances, said Timpson. "One person thinks very flexible ethics are OK, another does not. These are the kinds of differences that cause [corporate] divorces." Examples of corrupt behavior, according to one industry official, include:

  • The use of a raffle to steer a Mercedes toward one official.

  • The purchase of thousands of dollars worth of art from one government official's child.

  • The delivery of envelopes of cash.

The industry official declined to name the winning companies, or the contracts.

The cost of the bribes are hidden in the bid price, said industry executives. "The people who do [bribes] recover that from kickbacks. It does not cost them anything, because they raise the price 10 percent and give it back to the guy who gave them the contract," said one executive.


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