The bribery scandal involving Siemens AG, Europe’s largest engineering company, is the latest evidence that corruption of public officials remains a pernicious problem as globalization intensifies. Accepting or extorting bribes and misappropriating public funds erodes judicial institutions and the rule of law, distorts competition and injures the poor.
Anti-corruption rhetoric exceeds commitment and accomplishment, especially in emerging-market nations. Building durable, transparent and accountable institutions in the highly diverse developing world — with failed, failing, fragile and rising states — is key, though complex and time-consuming.
One part of the solution can be tackled immediately: vigorous enforcement of the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The goal of the effort — part of Paris-based Organization for Economic Co-Operation and Development – is to stop, or significantly minimize, bribes made by multinational corporations headquartered in industrialized nations.
The need for such action was underscored last month, when Siemens agreed to pay a record $1.3 billion to U.S. and German authorities for accounting and conspiracy offences, resulting from probes that the Munich-based company allegedly paid more than $1.4 billion in bribes around the world.
This followed resignations by Siemens’s board chairman and chief executive; the payment of more than $300 million in other penalties; restatements of more than $500 million for expenses subsequently disallowed as improper payments; and outlays of more than $850 million for lawyers and forensic accountants used in the company’s internal inquiry.
U.S. authorities said Siemens’s improper payments were “unprecedented in scale and geographic reach” as well as “systematic” and “standard operating procedures.” If bribery was so pervasive, involving employees at all levels, in such an iconic multinational company, then similar behavior almost certainly exists within major exporters elsewhere in Germany and in other industrialized nations.
Currently, 37 nations belonging to the OECD have ratified the anti-bribery convention and have enacted laws such as the U.S. Foreign Corrupt Practices Act (FCPA), prohibiting foreign bribery by U.S.-based transnational companies. These nations account for more than two-thirds of world exports.
Unfortunately, efforts to implement the convention at the national level have been inadequate. (The OECD itself has no enforcement powers; it can only monitor national efforts through its highly professional Working Group on Bribery.)
Not Applying Law
The U.S. has vigorously enforced its FCPA. However, according to a Transparency International report, 18 of the original 34 signatory nations — including the U.K. and Japan — have taken little or no action in enforcing the national anti- bribery laws required by the OECD convention.
Even among those nations that have undertaken investigations, there have been few successful bribery prosecutions or meaningful settlements, although in some places the pace of activity is increasing.
Enforcement means more than just punishing offending companies. It involves creating pressure in each jurisdiction for corporations to implement durable anti-bribery programs and to foster a business culture that fuses high performance and high integrity. Siemens is now in the process of such a transformation and was credited with “extraordinary” efforts by U.S. enforcers.
Spotty enforcement across the industrialized world creates trade and competitiveness issues, especially during a global recession.
No-enforcement nations pay lip service to anti-bribery goals while promoting their global ambitions at any cost. This harms companies and employees in high-enforcement nations such as the U.S. — and undercuts the OECD convention aim of “leveling up” developed countries’ anti-corruption standards for fair competition, not leveling down to a Hobbesian world of bribes.
The Siemens case demonstrates the need for renewed efforts to pressure member states to implement the national anti-bribery laws mandated by the OECD convention. These efforts include:
– At the OECD, peer pressure on laggard governments must be elevated to the ministerial level through active involvement by the secretary-general, the OECD Ministerial Council and top-level officials from member governments.
– The OECD must continue to fund a rigorous OECD Working Group monitoring program that includes country visits. There should be annual reports that compare and contrast (“name and shame”) enforcement efforts to hold nations more accountable at the bar of public opinion. The OECD should seek inclusion of major exporters like China, Russia and India as signatories, an effort that is under way.
Weak U.K. Laws
– The U.S. must strengthen bilateral action and jaw-boning, because some of the laggards are also our closest allies. This is especially true with the U.K., which has a poor enforcement record. It stopped a major, embarrassing inquiry involving alleged bribery in Saudi Arabia for dubious national security reasons, a matter now under investigation by the U.S. Department of Justice. The U.K.’s weak anti-bribery laws have been criticized by the OECD. Prime Minister Gordon Brown’s government has yet to announce how it will respond to recent recommendations from a U.K. law reform commission.
– The U.S. State Department and Commerce Department should revive their annual reports to Congress on the country-by-country level of antibribery enforcement, a practice that ended in 2004 when a congressional mandate expired.
– Global companies committed to high performance with high integrity must be more vocal about the need for more-uniform enforcement at the national level and for pervasive, preventive action by other corporations.
‘Complicity in Crime’
Ratification of the OECD Convention almost 10 years ago was an important commitment by the developed world to end bribery overseas, especially in the developing world. But complicity in crime is striking when OECD nations turn a blind eye to foreign bribery by home-country businesses. After the widespread practices revealed in the Siemens case, how can any laggard OECD nation claim that there is not much work to be done?
Barack Obama’s administration will be tested in its efforts to secure broader and deeper enforcement of the OECD convention by its industrialized allies, a vital U.S. interest. The administration of George W. Bush has had limited success in that area, despite Justice’s strong record in U.S. cases.
Targeting corrupt companies in the developed world helps reduce corruption in developing countries and can help them create durable, transparent and accountable institutions.
Strong enforcement also can prevent economic injury to companies and workers in developed nations actively enforcing anti-bribery laws. Such enforcement in the developed world must become the rule, not the exception, especially during a severe economic downturn when pressures within companies to make the numbers by cutting corners are ever more potent.