Corruption Information Exchange

OECD European Organization plus Japan, Korea and USA


Suspended EU chief accountant fears dismissal for her public allegations. It was reported that French magistrate is investigating whether oil titan Total SA funneled millions of dollars through a Swiss company to officials or middlemen in Russia and Iraq in order to land business there. Investigators working for Paris-based magistrate Philippe Courroye raided the suburban Paris headquarters of Total, the world's fourth-largest publicly traded oil company in terms of market value, and questioned several of the company's executives. (Financial Times, 30 September 2004 summary by Sherldine Tomlinson).

EU (European Union): Suspended EU chief accountant fears dismissal for her public allegations. It reported that Marta Andreasen, the suspended former chief accountant for the European Union who went public with claims that the annual budget was exposed to waste and fraud, is preparing to be dismissed. Andreasen is charged with breaking the Commission's rules of confidence and loyalty by raising her worries outside the institution. (Financial Times, 30 September 2004, summary by Sherldine Tomlinson).


MEPs accused of attendance fraud. According to reports, a senior member of the European parliament have exposed what he claimed was widespread corruption at the Strasbourg assembly by revealing that nearly 200 of his fellow Euro MPs had faked attendance at parliamentary sessions in order to pick up generous daily allowances. Hans-Peter Martin, an Austrian Social Democrat MEP, said that he had seen scores of colleagues signing on for parliamentary sessions which they had missed, to claim a daily attendance allowance. (The Independent, March 30, 2004, summary by Sherldine Tomlinson).



EU wants WTO to tackle corruption. The European Union wants to expand the agenda of the World Trade Organisation to include anti-corruption measures, Pascal Lamy, the EU’s trade commissioner. In Berlin, Lamy said that the commission would comment on the EU’s stance on business and trade-related corruption when WTO members reviewed its trade policies this year. (Financial Times 09 Jan 2004 summary by Sherldine Tomlinson).


Brussels moves two officials in cereals probe. The European Commission has responded to a vast police operation targeting alleged corruption and insider trading in the cereals market by taking action against two officials from the Commission’s agriculture directorate. One of the two officials moved from their posts was among those arrested following police raids across Belgium, France and the Netherlands. Neither the Commission nor the Brussels prosecutor’s office were able to provide details, though officials said that the case most likely involved the official in the agriculture directorate tipping off cereals companies on decisions that moved grain prices. (Financial Times Oct 17 2003 summary by Sherldine Tomlinson).


EU MAY HIT BACK AT US AUDIT RULES While US bankers show their sympathy to European concerns on the Sarbanes-Oxley Act which requires European audit firms having operations in the US to register with the Public Company Accounting Oversight Board, the US authorities , according to Mr. Campos from the US Securities and Exchange Commission, would refuse the EU's request for an exemption from the Act. And now US financial groups could be hit by a fresh wave of EU regulation in retaliation against sweeping American corporate governance rules. It's still not clear about a new law content which might be imposed on American companies having banking and insurance operations in EU but new methods to calculate capital adequacy and restrictions on intra-group transaction could be included. (Financial Times 16 Jun 2003, summary by Hanh Vu).


EU BRUSSELS: EUROPEAN COMMISSION ATTACKED OVER FRAUD:- The European commission has admitted there was fraud at one of its most sensitive departments called Eurostat. EU Budget Commissioner Michaele Schreyer said the issue of possible fraud was only brought to her attention last May. Yves Franchet, Eurostat's chief civil servant, and Daniel Byk, a director, are suspected to have set up a the system that allowed public money to be siphoned off to a concealed bank account in Luxembourg. The development has embarrassed European Commission President Romano Prodi who had promised to create a world class administration with zero-tolerance for fraud, as he replaced the previous commission that was brought down by allegations of nepotism and mismanagement. On Tuesday Members of the European Parliament heard an account of a Commission suffering from lack of internal communication and endless bureaucracy.  One of the cases raising eyebrows is that the commission, over the past 10 years, awarded so many contracts to one Planistat, a Paris based data consultancy firm now under French investigation. (THE FINANCIAL TIMES, June 18, 2003, SUMMARY BY DAVIS J. WEDDI STOCKHOLM SWEDEN).


COMMON EUROPEAN DEFINITIONS AND PENALTIES FOR CORRUPTION IN PRIVATE SECTOR. Francesco Rutelli of the Citizens’ Rights Committee welcomes the Danish proposal for a framework decision whereby both active and passive corruption in the private sector is deemed a criminal offence in all Member States.  In addition, the Committee wants an annual list of companies, produced by each Member State, found guilty of corruption to be published in the EU’s Official Journal.  According to the proposal, the maximum penalty for corruption should be between at least 1 and 3 years imprisonment.  Furthermore, individuals or companies that benefit from corruption should also be held liable.  (Europal News, November 18, 2002, summary by Vincent Fung).


NEW US FRAUD LAW CONFUSES EUROPE´S TOP COMPANIES The new US fraud law with tougher regulations on corporate finance-related activities and sentences of up to 20 years and fines up to $5 million for such crime, which signed into force last month and said to be made in an effort to combat the swathe of fraud and wrongdoing in corporate America, raised concerns among business circle not only in its homeland but also in EU where many companies currently have their listings in the US. While local business leaders expressed worries that the new controls could deter overseas companies seeking a stock or American Depository Receipt listing in the US, European companies, those would be affected by the new law, called for legal reaction from European Union since according to them it (the new law) was a very serious attack on European accounting and auditing practices. (Financial Times, Aug 12, 2002, summary by Hanh Vu).


SLOVAK REPUBLIC, Kosice, Slovakia, EU CONCERNED ABOUT LEVEL OF CORRUPTION IN SLOVAKIA. According to Jorge Espina, pre-entry EU adviser in Slovakia, the level of corruption is one of the greatest worries connected with the country’s possible EU entry. Mr. Espina explained that it is necessary to differentiate between corruption at higher positions and corruption at lower levels, which is widely spread in Slovakia. “The worst thing is that in the eyes of common to Slovaks the police and courts are very corrupted and so the fight against bribing is very difficult. At first, trust of the public in these institutions must rise. So, one form of help the EU offers is to form the public opinion,” Espina said. Finally, Mr. Espina recognized that Slovakia started to carry out right steps, including the necessary legislative changes. (BBC Monitoring Service, April 27, 2002, summary by Pavlidis George).


EUROPE, HOW CORRUPT IS EUROPE? The BBC's European affairs analyst William Horsley points out that Chirac is not the only European leader to face corruption claims. Across western and eastern Europe, public officials have also found themselves accused of being involved in corruption schemes. According to Mr. Horsley, judges and prosecutors have become much bolder than they were 10 years ago in investigating cases and in bringing charges against the rich and powerful. Nevertheless, the picture is not clear. Transparency International reckons that Italy is more corrupt than Botswana, and Greece is more corrupt than Namibia. According to Mr. Horsley, such judgements are hard to prove. Each country has its own pattern of grey or "black" business, and its own level of tolerance to corruption. ( BBC news, January 15, 2002, summary by Pavlidis George).


Bankers Quizzed over Money Laundering. Daniel Bouton, chairman of Societe Generale, the French bank, has become the latest in a long line of prominent French businesspeople to fall foul of the country´s investigating magistrates. Mr Bouton, and two other senior bank executives, were being held by police for questioning in Paris last night in connection with a judicial investigation into money laundering, the bank said. There has been no suggestion from the investigators that the SocieteGenerale executives are suspected of enriching themselves through crime. Instead, they are being questioned in their capacity as managers of the bank. Several French banks, and foreign financial institutions based in the country, are being probed in a lengthy investigation into apparently fraudulent cheque transactions between France and Israel. Cheques drawn on French banks were endorsed in Israel by the supposed payees and then cashed - as permitted under Israeli regulations - before being cleared through correspondent banking networks. Six executives from Societe Generale are among some 90 people placed under formal investigation in the case by Isabelle Prevost-Desprez, the magistrate. Last week, Societe Generale insisted that it had implemented appropriate measures against money laundering and said neither the bank nor its employees had "knowingly participated in any money-laundering transaction". Those being held last night along with Mr Bouton were Philippe Citerne, chief executive, and Didier Alix, the head of retail banking. French bankers, angry about a series of raids and temporary detentions in connection with the Israeli case and the bad publicity involved, have called for urgent clarification of the money-laundering regulations introduced in the 1990s. Jean Laurent, the Credit Agricole chief who chairs the French Banking Federation, has asked the financial authorities to explain "very precisely the duties of French correspondent banks" in the fight against money laundering. SocieteGene rale says it handled 3m cheques sent to it last year by foreign banks and and believes the whole process of correspondent banking is being called into question in France. Although irritated by long nights spent at police stations, French executives are no longer surprised to be summoned at short notice by a magistrate. In June last year, Henri de Castries and Claude Bebear, the present and previous chief executives of insurance group Axa, were placed under formal investigation into an alleged tax evasion scheme in Luxembourg. They were freed on bail. Again, they are not accused of seeking personal gain but are being held responsible for the actions of the company they oversee. (Financial Times, January 15, 2002, ,summary by Sherldine Tomlinson).


International Economy: Good Governance Goal for Europe A pan-European research centre is to be launched in Brussels today to improve cross-border scrutiny in European corporate governance. The constitution of the European Corporate Governance Institute (ECGI) coincides with an increase in shareholder activism in continental Europe and efforts by the European Commission and EU member state regulators to open up the European market for corporate control. Europe has trailed the US in scientific research on corporate governance, said Marco Becht, executive director of the Institute and associate professor of finance at the Universite Libre de Bruxelles. But the US was by no means immune to corporate governance problems, he said. The collapse of the Enron energy-trading group had focused attention on the flaws of the US system. Mr Becht said the institute through its website would provide access to work being produced by leading international academics to corporations, investors, regulators and stock exchanges. The board of the institute includes leading academic and non-academic members. The venture grew out of an initiative called the European Corporate Governance Network, launched in 1996, which was hamstrung by a lack of permanent funding and legal status. The original impetus came from the Bank of Italy, which believed the country’s malaise was its corporate governance. Public concern has also been spreading throughout Europe. "Since Robert Maxwell fell off his boat, the Asian crisis and privatisation, people have started questioning management and the people who run companies," Mr Becht said. The institute’s role was not to take policy positions but to provide facts and objective scientific research, Mr Becht said. "Take hostile takeovers. Many academics believe they improve corporate governance but others argue that the cost of hostile takeovers are larger than their benefits and that there are other ways of disciplining management and corporations than throwing an atom bomb at them," he said. (Financial Times, January 15, 2002, summary by Sherldine Tomlinson).


THE BRIBERY PROBLEM ISN’T SOLVED – OPINION    (Writer is the U.S. Secretary of Commerce reporting to Congress on OECD Anti-Bribery Convention.  Full text may be viewed at:  www.mac/ )    A higher quality of life for many around the world is produced by open and free markets, however, corruption is still a struggle in many other countries.  Key to combating corruption is enforcement of the OECD Anti-Bribery Convention.  An estimated 61 foreign government contracts worth $37 billion may have been awarded based upon foreign official bribery and about 70 percent of these allegations were tied to firms from signatory countries.  The private sector and international business is encouraged to report instances of bribery and to institute corporate compliance programs to prevent bribery.    (The International Herald Tribune, July 3, 2001, summary by Marg Reynolds).


OECD ASSISTING US SENATE PROBE    Senator Judd Gregg, Chairman of the Senate Appropriations Subcommittee overseeing U.S. contributions to the OECD, has requested the OECD produce financial statements, auditor’s reports, and cash flow statements back to 1997; together with examination of internal controls to identify high risk areas for fraud, waste, abuse, or mismanagement.  THE OECD will ensure this information is available through the State Department and has strenuously denied allegations of financial mismanagement.  A recently completed audit by Pricewaterhouse Coopers concluded OECD accounts are true and fair, however, Marta Andreason, former OECD accounting division head, contends an earlier draft made other conclusions.    (Accountancy Age, June 5, 2001, summary by Marg Reynolds).


CLEAN OPINION FROM PwC BOOSTS CREDIBILITY    Pricewaterhouse Coopers has certified an external audit that the accounts of the Organisation for Economic Cooperation and Development are true, fair, and in accordance with international public sector accounting standards.  THE OECD posted a loss of euro 14 million (8.49 million Pds.) for 2000, an improved position from the almost euro 93 million loss of 1999.  The OECD plans to continue with its blacklisting of financial centers based upon the havens’ tax policies despite withdrawal of support for this campaign by the Bush administration.    (Accountancy Age, June 4, 2001, summary by Marg Reynolds).


EUROPEAN COMMISSION:  EX-WORLD BANK VP-CONTROLLER JULES MUIS SAYS HE’LL MAKE ENEMIES AS EC AUDITOR    Jules Muis, head of the Commission’s internal audit service, stated he expects the director generals of the Commission’s directorates to take responsibility that their businesses are properly run.  The appointment of Romano Prodi, President, and Neil Kinnock’s recommendations for financial control have caused wholesale change in the department of internal audit.  Muis has a tough reputation, and his background includes a former position as a senior partner with Ernst & Young, and also a position as a corruption fighter with the World Bank.    (Accountancy Age, June 1, 2001, summary by Marg Reynolds).


EUROPEAN COMMISSION:  EU MONEY TO BE PROTECTED UNDER CRIMINAL LAW    A draft directive giving new impetus to the incomplete ratification of the 1995 Convention on the Protection of Financial Interests and its additional protocols will mean member states share common definitions of offenses and common rules on liability, penalties, and cooperation with the Commission.  Its primary purpose assures common definitions and rules in the fight against fraud, corruption, and money laundering, however, does not regulate judicial cooperation between member states.    (Commission Press Rel., May 23, 2001, summary by Marg Reynolds).


SHELL COMPANIES THAT HIDE CORRUPT ACTS UNDER ATTACK    The OECD Council of Ministers has announced adoption of the report entitled: ‘Misuse of Corporate Vehicles for Illicit Purposes’ to be part of a campaign to disable the sell company system used by criminals, corrupt officials, and tax cheats.  The non-transparent webs of an estimated 3 million anonymous corporation control a growing share of international capital and do not have a financial report filing requirement.  Many bearer share countries even have a ‘flee clause’ which enables the trust protector to transfer assets to another jurisdiction upon law enforcement inquiries or service of writ.  The OECD steering group reported on how secret corporations are misused, the mechanisms for owner identification, and authority sharing of information both domestically and internationally.    (Earth Times, May 18, 2001, summary by Marg Reynolds).


EUROPEAN COMMISSION:  BRITISH AUDITOR SAYS ANTI-CORRUPTION EFFORTS LAG. Neil Kinnock, Vice President of the European Commission, has been praised for his efforts to reform the management and control of European Community funds after the March 1999 resignations of President Jacques Santer and all twenty European Commissioners after corruption revelations.  Concerns over the slow pace of progress in the struggle to stamp out fraud and irregularities mostly involve the Common Agricultural Policy, which aims to even rich and poor regions in the European Union.  Significant subsidy overpayments and lengthy delays by the Commission, together with false declarations by the farmers, are amongst urgently required reforms to restore public confidence.    (BBC News, Apr 27, 2001, summary by Marg Reynolds).


EUROPEAN COMMISSION:  ANTI-FRAUD OFFICE OLAF CONTINUES BUTTER ADILERATION INVESTIGATIONS    The European Anti-Fraud Office (OLAF) has launched investigations into Italian based companies manufacturing industrial butter for sale to other Member states.  OLAF aims to detect and prosecute an organized criminal network responsible for defrauding the Community budget of several million Euros by selling adulterated butter to clients, particularly in France and Belgium.  OLAF intends to effect recovery of fraudulently obtained sums that were received by the criminal networks and who used resources subsidized by funding from Community disposal measures and export refunds in respect of butterfat.  (Olaf Press Release, Dec. 20, 2000, summary by Marg Reynolds).


LINKS and other sources of information:

OECD convention against bribery, A detailed legal document

OECD The organizations recommendations towards bribery in international business transactions. (Old URL:

OECD-Conference, Paris, July 1998. "Approaches to Improve Integrity and Transparency in Government" (Old URL:

OECD PUMA other links 

Fifteen OECD Member countries (Belgium, the Czech Republic, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Korea, Mexico, Poland, Spain, Sweden and Switzerland) actions against corruption, survey summary

The OECD anti-Corruption report on 21 countries can be found on




EUROPEAN UNION: "MILESTONE YEAR IN FIGHT AGAINST EU FRAUD" SAYS ANNUAL REPORT. It has been a milestone year in the fight against fraudulent use of EU taxpayers' money, according to the recently published 1999 annual report of the European Commission on 'The protection of the Communities´ financial interests and the fight against fraud'. The report specifies anti-fraud actions initiated by the Commission, such as the establishment of OLAF, the European Anti-Fraud Office; a new comperhensive anti-fraud strategy; new procedures to handle fraud in agriculture, structural funds and public tenders; new legislative proposals to fight money laundering and counterfeiting of the euro; and anti-fraud cooperation agreements with candidate countries and third countries. (EU Business, 15 November 2000, summary by Debbie Uy).


Brussels - The European Union has filed a civil suit accusing tobacco companies Philip Morris and R.J. Reynolds of smuggling large quantities of cigarrettes into EU nations. According to the suit, the EU has lost billions of dollars from lost customs, duties,fees,taxes,and property since the 1970's. The suit alleges that tobacco companies conspired with exporters in the Caribbean and Central America to distribute cigarrettes through the  European black market. (The Boston Globe, November 7, 2000, Summary by Fabian Camacho).


Europe and dirty money in politics: (WSJ, Feb. 9, 2000, p.A1 and A6)

More assertive judiciary, aggressive press and inquisitive citizenry are combining to bring pressure against secret relations between business and politics.  In early 1980s, there was a large contribution by F. Flick of a German conglomerate leading to limit of 20,000 marks, but was violated by Mr. Kohl himself. French oil giant Elf Aquitaine SA is being investigated and leading to scandals within scandals. Clean Hands campaign in Italy was started in the wake of Milan’s “bribesville,” but they are to obtain convictions.


Council of Europe - Treaty ETS No.173 - Criminal Law Convention on Corruption

Summary of the Treaty. Signatures and Ratifications. E-mail. COUNCIL OF EUROPE European Treaties. ETS No. 173. CONSEIL DE L'EUROPE...

Convention on Launering, Search, Seizure and Confiscation of the Proceeds form Crime (Council of Europe, Strasbourg, 8 November 1990)

NEW PROSECUTOR TO HELP BATTLE AGAINST FRAUD. A new institution, the European Prosecutor will help the fight against fraud in EU budgets and spending programs. The European Prosecutor will be in charge of investigations and prosecutions into cases affecting the EU's financial interests. He will be presenting to the national courts evidence obtained across the entire EU, helping them to overcome the obstacles posed by the fragmentation of jurisdiction among 15 (and soon more) Member States, each with their own rules and procedures. The European Commission's proposal on including the appointment of an independent prosecutor and his tasks in a new article in the Treaty will be sent to the Intergovernmental Conference for agreement. According to the Budget Commissioner Michaele Schreyer "The traditional methods of judicial co-operation are no longer appropriate or adequate for the task of effectively combating fraud against the financial interests of the Community" (Source: EU Business, September 29, 2000, summary by Pavlidis George).

Council Directive on Prevention of the use of the Financial System for the Purpose of Money Laundering (European Union, 91/308/EEC, 10 June 1991. Old URL: Opinion: High time for better ethical behavior by European corporations

(TI; The Earth Times, 18.8.00,


HIGH TIME FOR BETTER CORPORATE ETHICAL CONDUCT - AN OPINION. Too many European companies have paid bribes in developing countries, and exploited labor. (i) German sporting goods manufacturer used prison labor in China to make soccer balls; (ii) Dutch initial public offering CEO sold stock privately before the public sale (iii) Elf of France is investigated. European legislation exists to make bribery of foreign officials a criminal offense.

Corporate compliance with these new laws has barely started. (iv) Securities and Exchange Commission (SEC) are far ahead of those of European regulatory authorities. (v) media in the U.S. is independent. Most European journalists take all-expenses-paid foreign travels etc. (vi) U.S. laws exist that demand that all such payments are publicly listed. Not so, in much of Europe. (vii) Globalization makes this urgent. (By Frank Vogl, Presidenof Vogl Communications, Inc.) Earth Times News Service, August 18, 2000


EUROPEAN UNION: THE REAL MEASURE OF FOREIGN AID Carol Adelman, Senior Fellow at the Hudson Institute, writes in an op ed in the Wall Street Journal Europe that it is a truth universally acknowledged that the EU´s methods of disbursing foreign aid could stand improvement.

Chris Patten, the EU commissioner responsible for external affairs, certainly thinks so: He´s been among the leading critics of an aid program that - while among the world´s leaders in "official development assistance," the standard by which foreign-aid donors are compared - managed to lose track of $10 billion of its budget. At the same time, the conventional wisdom holds that when it comes to foreign aid, the United States is something of a Scrooge. Yet things may not be so bad as they seem, at least in the US. Yes, America ranks last among developed countries in the percentage of its GNP that it spends on foreign aid. Yet this figure is misleading. The DAC measure does not include American international giving from foundations, universities, corporations, churches and individuals - which is almost three times larger than government aid flows.

Such figures are not published by DAC or even by the US Agency for International Development. This is a critical omission since private giving by other OECD members is, almost certainly, much less than America´s. If the EU wants to ensure that its foreign aid is put to good use, it would do well to follow America´s example by opening the way for greater private giving. The first fact to come to grips with is that massive foreign-aid transfers do not cure poverty. Egypt and Pakistan, both of which have been among the largest beneficiaries of foreign aid over the years, have not exactly prospered economically as a result. Smaller aid recipients, such as Kenya and Zimbabwe, have fared even worse. The reason for this is simple: Foreign aid tends to reward governments that have pursued failed economic strategies, and often only forestalls needed changes in policy. The key element of long-term economic growth is private investment and lending (private direct investment, international bank lending, bond lending). The EU and other European donors can encourage more private giving through tax incentives and matching grants from government partnerships. Private philanthropy creates local partnerships, meets real needs, moves faster and works better than government aid. Besides, private giving leaves no mountain of debt from poorly conceived loans, which further impoverish poor nations. When government money is involved, what matters isn´t so much the amount of money given, but how well the money is spent. Finally, foreign aid cannot substitute euros and cents for competence and honesty. The poorest countries, where much less private investment is flowing because of corruption and inefficiency, cannot grow without open societies, free markets and rule of law to combat corruption. Private donors - whether they are charitable philanthropies or profit-seeking corporations - are generally better than governments at targeting money where it´s needed most, tracking projects closely, cutting out waste, eliminating fraud and getting real results. If Europe wants to put its charitable resources to good use, it would do well to take the private route. World Bank Development News, August 10, 2000 http://www.worldbankorg/devnews



The Organisation for Economic Co-operation and Development´s internal accounting system has been criticised as outdated and inadequate. According to an independent report by Arthur Andersen, the system fails to provide a clear view of the body´s finances and the way it spends its $200m annual budget. The report was commissioned by the OECD itself in response to accusations of financial malpractice. Details have emerged at a delicate time for the organisation - the forum for 29 of the richest nations to debate economic and social issues is in the middle of a campaign to promote financial transparency in tax havens and other financial centres. The criticism contained in the report has prompted the organisation to speed up a plan for radical reform of its accounting procedures. Donald Johnston, OECD secretary-general, said the Andersen document had provided a "good wake-up call" for the organisation, which has been criticised in other independent reports. He said: "What those reports are saying is that the OECD uses archaic accounting systems - which we know and which we are cleaning up." The Andersen report found no evidence of fraud. A reference to a likely misappropriation of funds in a draft version was removed in the final version. The OECD said that the expression meant that some of the budget entries were recorded in the wrong place in the accounts rather than that funds had gone missing. However, the final report attacked the organisation´s financial reporting for its lack of clarity, saying: "Under such circumstances, forming an informed opinion as to the organisation´s financial health, including its liquidity and solvency, is difficult". The report, which was distributed to OECD members earlier this year but never published, argues that the organisation´s financial information had "major deviations compared with generally accepted international accounting standards and practices". For example, it urges the OECD, which was formed in 1961, to include in its annual accounts an income statement, a cash flow statement and explanatory notes. The OECD is not the first international organisation to have been attacked for having failed to keep its financial and management systems up to date. The United Nations High Commissioner for Refugees, the refugee agency, gave a public pledge two years ago to improve its financial and management controls. The OECD has been cutting staff and costs in the past few years after coming under pressure from the US, which wanted to reduce its budget contributions. Mr Johnston said the OECD had already begun a programme to address the problem areas identified by Andersen and other reports in the last few years. "I don´t think [the financial system] is a complete mess," he said. "I just think it needed reform and that´s what we are doing". He also chided Andersen for complaining that the OECD did not provide for depreciation on its Bordeaux-heavy wine cellar. The OECD´s accounts for 1999, which are due to discussed by the organisation´s ruling council early next year, are expected to be the first set to comply with internationally accepted standards in most areas. Financial Times, August 14, 2000


TRANSITION ECONOMIES: ARE FOREIGN INVESTORS AND MULTINATIONALS ENGAGING IN CORRUPT PRACTICES. AN ARTICLE by Joel Hellman, Geraint Jones, and Daniel Kaufmann from Transition Newsletter: *Foreign direct investment (FDI) plays an increasingly important role in emerging economies. Among transition economies, substantial investment has gone to a few countries in Eastern Europe and the former Soviet Union, while little investment has reached other countries in the region. Between 1994 and 1999 Poland received $20 billion, the Czech Republic $13 billion, and Hungary $12 billion in cumulative FDI flows. In sharp contrast, Armenia, Belarus, Georgia, Tajikistan, and Uzbekistan received less than $1 billion over the period, according to EBRD data. During that five-year period, annual average FDI in Belarus, Kyrgyzstan, Moldova, the Russian Federation, Ukraine, and Uzbekistan was less than $20 per capita, while the Czech Republic and Hungary received about $200 per capita a year, and Poland and Slovenia received about $100. In countries rich in natural resources, such as Azerbaijan, Kazakhstan, the Russian Federation, and Turkmenistan, FDI was made, but flows were weaker than they would have been had better governance prevailed. In fact, for all 22 countries in transition for which data are available, after controlling for natural resource wealth, there is a significant negative association between per capita FDI and the extent of administrative and "grand" corruption--meaning kickbacks in large-scale government contracts. The assertion that corruption deters FDI is not new.

In our research we concentrate on the converse question: compared with their domestic counterparts in the host country, do transnational firms (and local firms with substantial FDI or foreign ownership) exhibit higher standards of corporate responsibility? Do these firms engage in corrupt practices less often than other firms? Conventional wisdom would answer in the affirmative. Most foreign firms are governed by additional legal constraints, the most recent being the OECD Convention on Combating Bribery of Public Officials in International Business Transactions, which went into force in early 1999. For more than 20 years U.S. firms have been subject to the Foreign Corrupt Practices Act, which prohibits U.S. firms from bribing foreign public officials to obtain international business. Foreign firms are also keen to enhance their reputations and respond to stakeholder pressures for more responsible corporate practices. In fact, many firms have adopted voluntary codes of corporate conduct, which typically include anti-bribery commitments. It might thus be expected that relative to their domestic counterparts, firms with foreign capital would tend to avoid corrupt practices. To study in depth the issues of governance and corruption in 22 transition countries, the World Bank and EBRD jointly carried out the Business Environment and Enterprise Performance Survey in mid-1999 (A.C. Nielsen administered the survey). Using the survey data, we analyzed the nature of the relation between firms and government, focusing on various corrupt and noncorrupt means by which firms exert influence over the state. We took a multidimensional approach to corruption, governance, and influence, unbundling these concepts into specific subcomponents.

Specifically, we analyzed the corporate behavior of foreign investors relating to legitimate influence (such as lobbying) as well as corrupt ways of exerting influence. Our study examined three types of corruption: administrative corruption (bribes to bureaucrats to alter the implementation of rules and regulations), state capture (the "purchase" of laws and policies by corporations), and public procurement kickbacks (payments made to secure procurement contracts). We also examined legal methods of affecting policy (such as lobbying). We found that transnational firms are just as likely to pay administrative bribes and to try to capture the state as other firms and that transnational firms headquartered abroad are more likely than other firms to pay public procurement kickbacks. In a companion paper, we found that administrative corruption does not pay: on average all types of firms (with or without FDI) that engaged in administrative bribery experienced lower sales and investment growth than those that did not. The fact that the majority of firms in most countries still engage in such practices may reflect the fact that local bureaucrats exert extortion pressure on them. On average transnational firms pay just as high a percentage of their revenues in administrative bribe payments as do domestic firms without FDI. There are, however, important differences across sub regions. Administrative bribery by FDI firms is less prevalent in Central and Eastern Europe and the Baltic than in the CIS.  Bribery in the CIS is particularly prevalent in firms with foreign ownership headquarters are located in the host country rather than abroad.

State capture, a pernicious form of corruption prevalent in many transition economies, refers to attempts to extract benefits from the state by corruptly influencing the formulation of policy (public laws, rules, and regulations). The evidence suggests that state capture is particularly prevalent when firms face insecure property rights, insufficient economic liberalization and competition, and only a partial liberalization in civil society and media activities, impairing their ability to effectively monitor the activities of the state. Despite the more stringent regulations governing their behavior, firms with FDI are involved in state capture just as frequently as domestic firms without FDI. Transnational firms with headquarters in the host country are more likely to engaging in state capture than firms headquartered abroad. Firms with FDI whose headquarters are located abroad are most likely to pay public procurement kickbacks.

Such firms are more likely to pay procurement kickbacks than domestic firms with no FDI or transnational firms headquartered in the host country. At least for transition economies, these results challenge the efficacy of transnational anti-bribery conventions and laws or self-imposed codes of conduct to reduce corruption by themselves. The data--admittedly based on a small sample for each country of FDI origin and thus subject to a high margin of statistical error--do not support the notion that transnational anti-bribery laws (such as those that have been in effect in the United States for decades) have led to higher standards of probity in overseas public procurement. True, the implementation of the OECD convention is just underway, and it is thus too early to evaluate its impact. Yet it is suggestive that FDI originating in the United States--which has been governed by the Foreign Corrupt Practices Act for more than 20 years--does not appear to be characterized by higher standards of corporate ethics than domestic firms or FDI originating in other countries. The impact of coordinated multilateral action under the OECD convention may or may not end up being more potent if and when countries fully implement, monitor, and enforce the recent agreement. A positive benefit of transnational bribery laws concerns the behavior of potential investors. Transnational firms and foreign investors may avoid investing in countries with poor governance and high corruption. Reduced levels of FDI can thus indirectly exert pressure to improve governance within a country. In contrast to the prevalence of corrupt practices by many firms with FDI in the CIS, exertion of influence is more prevalent in Central and Eastern Europe and the Baltics, particularly among foreign firms with local headquarters. The evidence shows that firms that exert influence enjoy higher sales and greater investment growth than those that do not. The causes and consequences of corruption are increasingly well understood; less is known about the reasons for its persistence. The analysis of state capture and kickbacks points to powerful private incentives to engage in these activities. In capture economies, where there is a large market for capture of policies and laws, successful captor firms enjoy strong private gains in terms of performance and improved security of their property rights (from an admittedly very low level). Private gains also appear to accrue to public procurement corruption. The private benefits that domestic firms and firms with FDI derive from state capture and procurement kickbacks (in contrast with pettier forms of administrative corruption) suggest why addressing these pernicious forms of corruption is a particularly challenging task. It is unrealistic to suppose that firms will not try to influence the policy and regulatory environment within which they operate.

Indeed, firms in advanced market economies exercise influence over public policy through a variety of channels. Our research highlights the fact that these strong lobbies are present in transition countries, too, but is directed into illicit channels with highly detrimental social and economic consequences. Policymakers can adopt a variety of measures to reduce grand corruption, in other words, procurement kickbacks. First, they can make the relation between the state and firms with FDI more transparent by: Monitoring meetings between firms with FDI and elected officials on the Internet (to make lobbying more transparent); Striving for greater transparency in party financing; Supporting the establishment of foreign investment advisory councils and foreign business clubs and associations (to give transnational firms a meaningful alternative channel of influence and create interactive forums among competitors); Setting up monitoring groups with international business associations and other civil society groups to oversee tenders, privatization deals, and large-scale procurement with FDI participation; Regularly monitoring and disseminating survey-based data on corporate practices of firms with FDI and disseminating evidence on the socioeconomic costs of firms' illicit activities; Improving governance through coalition building and collective action by associations of entrepreneurs, reformist government officials, lawmakers, and the media.

The World Bank Institute is already playing a facilitating role in building coalitions and deepening awareness through participatory workshops in which participants discuss the link between corporate responsibility and national governance. Second, policymakers can promote global transparency through collective international actions. These actions include: Concerted monitoring and enforcement of global initiatives that mobilize national governments, legislative bodies, civil organizations, domestic firms, and the international investment and financial community to work in tandem; Expanding the World Bank's practice of publicly blacklisting firms found to engage in public procurement corruption; (visit Supporting the efforts of international NGOs, such as Transparency International and the International Chamber of Commerce, in advising firms on developing codes of corporate conduct that reject bribery; Widely disseminating information on transnational firms that have taken a proactive stance on corporate responsibility and ethics. Third, policymakers can design anti-corruption programs by: Tailoring the national anticorruption strategy to the political and economic reality of state capture and other forms of grand corruption and putting particular emphasis on demonopolization, competition, and protection of property rights, as well as complementary public sector reforms; Paying special attention to the needs of civil society, the competitive media, and legislative bodies. Emerging Economies, August 2000


OECD.World Trade Organization Rules Can Help In The Fight Against Corruption. The various agreements developed by the WTO do not specifically address corruption and bribery, but they help to prevent it in various ways. The article briefly describes each agreement and explains how its provisions encourage honest trade practices - by reducing bureaucratic arbitrariness, eliminating business incentives for corrupt behavior, and establishing  procedures that are fair and equitable, and clear, open and tarnsparent to all interested parties. (OECD Observer. July 21, 00. Summary by R. Virkar).


BRUSSELS --Cartel Busters Uncover Corruption In  Product Group Paperboard, a European Industry Association. A cartel of 19 cardboard producers, was fined nearly 130 million euros ($117.3 million) in 1994 for breaking antitrust laws. Contact author Phillip Shishkin at WSJ, Business and Finance – Europe August 29, 2000. summary by H. Vinod).



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