The globalisation of corruption

Corruption takes many different forms, from the routine cases of bribery or petty abuse of power that are said to “grease the wheels” to the amassing of spectacular personal wealth through embezzlement or other dishonest means.
For multinationals, bribery enables companies to gain contracts (particularly for public works and military equipment) or concessions which they would not otherwise have won, or to do so on more favourable terms. Every year, Western businesses pay huge amounts of money in bribes to win friends, influence and contracts.
These bribes are conservatively estimated to run to US$80 billion a year - roughly the amount that the UN believes is needed to eradicate global poverty. In 1999, the US Commerce Department reported that, in the preceding five years, bribery was believed to have been a factor in 294 commercial contracts worth US$145 billion. In 1996, the magazine World Business reported that the bribes paid by German companies alone were over $3 billion.
Not just companies are involved. According to a French secret service report, the official export credit agency of France paid around $2 billion in bribes to foreign purchasers of “defence equipment” in 1994.
Such bribery may be pervasive, but it is difficult to detect. Many Western companies do not dirty their own hands, but instead pay local agents, who get a 10 per cent or so “success fee” if a contract goes through and who have access to the necessary “slush funds” to ensure that it does. Bribery is also increasingly subtle. It often takes the form of semi-legal fees or “commissions”, and inflated or marked-up prices.
In contracts guaranteed by export credit agencies, such “commissions” are included in the costs and thus in the total contract value covered by the guarantee. “It is obvious,” comments Transparency International, “that this practice constitutes an indirect encouragement to bribe which, in future, brings it close to complicity with a criminal offence”.
Until recently, bribery was seen as a normal business practice. Many develeoped countries treated bribes as legitimate business expenses which could be claimed for tax deduction purposes.
Corruption poses a serious problem for public authorities and the public because it makes services more costly, undermines development, and distorts democratic processes and rational decision-making. The amount of money lost to corruption which could, and should, be directed towards public services and to the development of democratic institutions is significant. Transparency International estimates that, on average, five per cent of public budgets go astray.
Ultimately, corruption hurts the poor first and foremost, whether in America, Europe, Africa or Asia. The late Prime Minister of India, Rajiv Gandhi once told the Indian parliament that only 15 per cent of aid money got through to its intended beneficiaries. Corruption makes the poor poorer.
It is they who get squeezed out of decision-making and pushed to the political margins in situations where money buys influence. It is they who lose out when money that could have been spent on improving services or basic living standards is diverted to big expensive projects with lucrative “commission” potential. It is they who end up themselves having to pay bribes for basic services or who lose out because they can’t afford to.
As the British politician Hugh Bayley noted in a speech :”The cost of bribes falls primarily on the poor. When a corrupt contractor from this or some other rich country pays a 15 per cent bribe, he adds that to the price of his contract. His power station or irrigation scheme will cost more, and the little people — those who buy the electricity or the water to irrigate their crops will pay the price of that bribe. Bribery is a direct transfer of money from the poor to the rich”.
Multinational corporations’ corrupt practices affect the South in many ways. They undermine development and exacerbate inequality and poverty. They disadvantage smaller domestic firms. They transfer money that could be put towards poverty eradication into the hands of the rich. They distort decision-making in favour of projects that benefit the few rather than the many. They also increase debt; benefit the company, not the country; bypass local democratic processes; damage the environment; circumvent legislation; and promote weapons sales.
Bribes put up the prices of projects. When these projects are paid for with money borrowed internationally, bribery adds to a country’s external debt. Ordinary people end up paying this back through cuts in spending on health, education and public services. Often they also have to pay by shouldering the long-term burdens of projects that do not benefit them and which they never requested.
The US company, Westinghouse Electric Corp, provides an infamous example. Westinghouse won a contract in the early 1970s to build the Bataan nuclear plant in the Philippines. It was alleged that it gave President Ferdinand Marcos US$80 million in kickbacks. The plant cost $2.3 billion three times the price of a comparable plant built by the same company in Korea.
Filipino taxpayers have spent $1.2 billion servicing the plant’s debts even though the plant has never produced a single watt of electricity because it was built at the foot of a volcano near several earthquake faultlines. The Philippine government is still paying $170,000 a day in interest on the loans taken out to finance the nuclear plant and will continue to do so up to the year 2018.
Once the then Philippines Treasurer Leonor Briones Commented that: “It is a terrible burden which never fails to elicit feelings of rage, anger and frustration in me. We’re talking of money that should have gone to basic services like schools and hospitals”.

(To be continued...)