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Corporate Compliance Insights
Home Compliance

Tackling the “Corruption Epidemic”

by Richard Bistrong
January 14, 2015
in Compliance
Tackling the “Corruption Epidemic”

with contributing author John Bray

In their recent Foreign Affairs article, “Grappling With Graft, “Alexander Lebedev and Vladislav Inozemtsev propose a new international initiative – a “universal anti-corruption convention” – to combat high-level corruption. The convention would establish a supranational governing body, dedicated investigative and police forces and a specialized court.

Lebedev and Inozemtsev are quite right to highlight the damage inflicted by corruption and the need for coordinated international action to deal with it. However, their proposed solution is misconceived. Rather than creating new institutions, we need to strengthen existing ones. This article explains why.

Diagnosing the Problem

First, we challenge the authors’ premises. Lebedev and Inozemtsev appear to be living in a bipolar world in which the sources of corruption lie almost exclusively in developing and transition economies.  True, they acknowledge the existence of a large-scale money-laundering industry in the West, and they point to the damage that it can cause. However, the sources of the infection lie elsewhere. The outcome of their proposed convention would be to “divide the world’s countries into two camps: the signatories and the outsiders.” Isolation is the answer.

Unfortunately, it’s not so simple. It’s not just that Western financial centers launder the proceeds of graft. All too often, Western companies have been responsible for paying bribes that sustained corrupt dictators such as Nigeria’s Sani Abacha, thus delaying the governance reforms that we now demand. We need to tackle the problem at both ends.

A Holistic View: Small Bribes Matter

Secondly, we challenge the authors’ call for a distinction between “corruption” and “bribery,” which they classify as “mostly a low-level phenomenon, neither systemic nor organized.” They suggest that low-level “bribe taking could even be reclassified as an administrative misdemeanor rather than a criminal act.”

Again, it’s not so simple. The cumulative impact of thousands upon thousands of small-scale bribes is deeply corrosive. Demands for small bribes are a form of extortion. There is ample evidence that the phenomenon is both systemic and organized — for example, when front-line policemen pass the greater part of their proceeds up the hierarchy to senior officers who have “bought” their own promotion. It’s not just that ordinary citizens have to pay money that they can ill afford in order to secure essential services. A culture of petty bribery undermines the integrity of vital government institutions. There is no clear dividing line from large-scale graft.

An acceptance of petty bribery is damaging for companies, too. It undermines the corporate culture by conveying the message that “anything goes.” Again, there is no clear dividing line. If the company pays small bribes, why should it not pay large ones?

Strengthen Existing International Initiatives

If corruption is a complex, multifaceted problem, it demands a range of coordinated responses. Fortunately, a number of international initiatives are under way. None of them are perfect or complete, but the best way forward is to reinforce them, not to reinvent them.

Lebedev and Inozemtsev call for an international convention. Much is already happening in this area. One of the most important initiatives is the 1997 OECD Anti-Bribery Convention which tackles the “supply side” of bribery from the leading exporting nations. All 34 OECD member states and seven others – including Russia – have signed the convention, thereby undertaking to criminalize foreign bribery on the same pattern as the U.S. Foreign Corrupt Practices Act (FCPA).

The OECD operates a system of peer review whereby member states review each other’s implementation records. Always couched in diplomatic language, the peer review reports nevertheless manage to be scathing when needed. And they do have an impact. The OECD critiques contributed to the political momentum behind the UK Bribery Act (2010), which is widely regarded as a standard setter, even tougher than the FCPA in that it covers bribery of anyone “in a position of trust,” not just foreign officials.

However, the OECD Convention still has far to go. Exporting Corruption, a recent “progress report” issued by the anti-corruption NGO Transparency International, argues that only four countries – the U.S., the UK, Germany and Switzerland – can claim “active enforcement” of the convention. Another five countries – Italy, Canada, Australia, Austria and Finland – qualify for “moderate enforcement.” Between them, the active and moderate enforcers account for 31.4 percent of world exports, so they have real weight, but this is not enough. There is a clear need for greater political will on the part of the convention signatories. Lebedev and Inozemtsev are right to call for concerted action on the part of Western nations. This is one place where they can start – or rather, continue.

Lebedev and Inozemtsev are also right to call for an initiative that will be signed by the “leading developed and developing economies.” We already have one: the 2003 United Nations Convention Against Corruption (UNCAC).  The convention has been ratified by 140 countries, so far not including either New Zealand or Japan. The UNCAC’s strengths include the fact that it is detailed and, from a legal point of view, close to comprehensive. It is also – to adopt a word favored by Lebedev and Inozemtsev – close to universal. This particular strength is also a weakness, because securing consensus on effective implementation and review processes is slow, arduous and not particularly glamorous – though essential all the same.

Finally, in this brief review of international initiatives, we should also acknowledge that Lebedev and Inozemtsev are entirely correct in their emphasis on the damage caused by money laundering and illicit capital flight. Here we point to the important work done by the Financial Action Task Force (FATF), an international body with 36 member states that specializes in tackling precisely this problem. On a similar note, the World Bank and the United Nations Office on Drugs and Crime (UNODC) have jointly set up the Stolen Asset Recovery Initiative (STAR) to focus on the recovery of stolen assets and corrupt funds.

It’s Not Just Governments

Listing these initiatives is, at one level, encouraging: so much is being done. It is also daunting: so much remains to be done. Here, we agree with the tone of justified impatience expressed by Lebedev and Inozemtsev. We need more action. However, we can’t just rely on top-down initiatives from governments, universal or otherwise.

Companies – both in developed and in developing countries – also need to take responsibility. First, just like government institutions, they must take responsibility for what happens in their own organizations. In a recent article in The Journal of Business Ethics (2014) titled “Culture Corrupts! A Qualitative Study of Organizational Culture in Corrupt Organizations,” Jamie-Lee Campbell and Anja S. Göritz highlighted the “social cocoon” that contributes to graft. The cocoon includes the mechanisms of rationalization, socialization and institutionalization that create a dishonest corporate culture. In the worst case, this leads employees to “facilitate corruption, expect their colleagues to act corruptly and punish those who refuse to engage in corruption.” This is part of the reason why an acceptance of small bribes is so damaging:  it reinforces the cocoon.

Secondly, if governments lack the political will to tackle corruption, part of the reason may be that businesses are not complaining enough. If corruption undermines economic development, companies should say so – loudly and frequently.

This leads to our final point. Corruption is an international problem. International players – including large corporations and an array of intergovernmental institutions – need to acknowledge their part in combating it. However, tackling corruption is also a task for civil society organizations and for citizens, both in developed economies and in countries with weak governance.  We all need to take ownership.


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Richard Bistrong

Richard Bistrong

Richard Bistrong, CEO of Front-Line Anti-Bribery LLC Former FCPA Violator and FBI/UK Cooperator; Anti-Bribery Consultant; Writer & Speaker Richard Bistrong spent much of his career as an international sales executive in the defense sector and currently consults, writes and speaks on foreign bribery and compliance issues from that front-line perspective. Richard’s experience included his role as the Vice President of International Sales for a large, publicly traded manufacturer of police and military equipment, which required his residing and working in the UK. For well over 10 years, Richard traveled overseas in his sales responsibility for approximately 250 days per year. In 2007, Richard was targeted by the U.S. Department of Justice in part due to an investigation of a UN supply contract and was terminated by his employer. In that same year, as part of a cooperation agreement with the DOJ and subsequent Immunity from Prosecution in the United Kingdom, Richard assisted the United States, Great Britain and other governments in their understanding of how FCPA, bribery and other export violations occurred and operated in international sales. Richard’s cooperation, which spanned three years of covert cooperation and two years of trial preparation and testimony, was one of the longest in a white-collar criminal investigation. In 2012, Richard was sentenced as part of his own plea agreement, and served fourteen-and-a-half months at a federal prison camp. Richard was released in December of 2013. Richard now consults, writes and speaks about current front-line anti-bribery compliance and ethics issues. Richard shares his experience on anti-corruption and ethical challenges from the field of international business, reflecting on his own perspective and practice as a former sales executive and law enforcement cooperator. Richard currently consults with organizations through his company, Front-Line Anti-Bribery LLC, and welcomes the opportunity to exchange and share perspectives on real-world anti-bribery and compliance challenges.  Richard has shared his experience, via keynotes and panels, with the OECD, World Bank and International Anti-Corruption Academy, as well as major multinationals and leading academic institutions. Richard can be reached via his website www.richardbistrong.com  or email richardtbistrong@gmail.com and he frequently tweets on #FCPA & #compliance via @richardbistrong.  Abstracts on his consulting practice can be found on his website. Richard is also a Contributing Editor to the FCPA Blog at www.fcpablog.com.

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