The Endless Cycle Of Corruption

The Paris meeting in mid-January was a tense affair. In an oak-paneled conference room of an elegant mansion that once belonged to the Rothschild family, government representatives from more than 30 countries listened skeptically as British officials explained why they had dropped a high-profile bribery investigation into $80 billion in British contracts to supply military aircraft and other equipment to Saudi Arabia.

At the closed session, according to several people familiar with the proceedings, the British officials sketched out details of the case: the Serious Fraud Office (sfo) had uncovered various strands of alleged corruption at BAE Systems, a U.K. defense contractor, including one that allegedly involved a member of the Saudi royal family. (The company denies any wrongdoing.) But, the officials continued, the fraud office’s director in London had decided to discontinue the investigation after several meetings with the British ambassador in Saudi Arabia . The reason given: national security.

That vague and largely undefined explanation didn’t satisfy anyone in the room, including a U.S. State Department representative there. According to people with knowledge of what was said, the American asked “what comfort could the British government give” to other countries that there was no corruption currently taking place.

The meeting closed with a published statement expressing the “serious concerns” of the other governments represented with what had happened — and a requirement that Britain explain itself more fully, this time in writing, before another meeting in mid- March. The British government won’t comment on what happened in Paris , but Attorney General Lord Goldsmith told Parliament that dropping the case “does not mean that we are backing off in any way from our commitment to tackling international corruption.”

At a time when the world is preoccupied with intractable geopolitical and climatological issues, that session of the Organization of Economic Cooperation and Development’s Working Group on Bribery in International Business may seem of marginal significance. In fact, it was one of the hot topics on the fringes of the World Economic Forum in Davos, because it exemplifies just how far the world has come — and how far it still has to go — in cracking down on one of the great scourges of globalization.

The fact that a nation such as Britain is required to answer to its peers over a specific case highlights the prominence of the fight against corruption. The o.e.c.d.‘s 30 rich country members signed an antibribery convention in 1997 after years of difficult negotiation and several failed attempts by others to construct something similar. That 1997 convention — under which signatories pledge themselves to outlaw bribery of foreign public officials in international business — has since become the cornerstone of international antibribery policy; six non-o.e.c.d. members, including Brazil and Argentina , have also signed it.

But if a government is allowed to plead that reasons of national security excuse it from its obligations, any international consensus on bribery would quickly disappear. “What happened with the U.K. — that a country has to explain itself and justify what it is doing internally — would have been impossible some years back,” says Mark Pieth, a Swiss law professor who chairs the o.e.c.d. working group. Pieth says he wants Britain to have a fair hearing, but he worries that, if there has been a breach, the convention itself would be “squarely at risk.”

For decades, paying bribes was an unspoken but largely inevitable cost of doing international business. The World Bank Institute, the bank’s in-house think tank, estimates that more than $1 trillion is paid in bribes each year, lining the pockets of officials at the expense of economies, distorting competition and giving business a bad name the world over. The U.S. tried to outlaw the habit with its Foreign Corrupt Practices Act of 1977, which makes it unlawful for any American firm to make a corrupt payment to a foreign official. But that was long the exception; many other rich countries simply turned a blind eye. In Germany and Luxembourg , bribes used to be tax deductible. In many countries, and for many firms, bribes were just the way things were done.

That was then. Of late, opinion on corruption has changed, as campaigners such as rock star Bono, joined by businesses and governments, have argued that corruption is a key cause of Africa ‘s underdevelopment and makes a mockery of international competition for contracts. In part, that is because business leaders in the old rich countries fear new competition. At a conference on business corruption in Paris last December, executives from France — no strangers to business-ethics scandals themselves — complained that they were losing out in Africa to Chinese firms that were less legally and morally encumbered.

In the new climate, many developed countries have changed their legislation to crack down on bribery. One hundred and forty governments have now signed a 2003 United Nations convention against corruption. There are currently more than 100 foreign bribery investigations under way worldwide, according to Angel Gurría, the o.e.c.d.‘s secretary-general. One of the cases with the highest profile involves the huge German firm Siemens, which is under investigation for allegedly paying bribes to win telecommunications contracts. The company said recently that, on checking its books for the past seven years, it has found $550 million in payments it could not clearly identify.

Rather than waiting for governments to act, some corporate executives are trying to persuade their peers to join forces against graft. In 2002, for example, mining companies agreed to a set of ground rules called the Extractive Industries Transparency Initiative (eiti), under which they disclose their payments to government. Alan Boeckmann, chairman and chief executive of the giant U.S. construction company Fluor, is trying to extend such cooperation to other industries. So far he has persuaded some of his rivals, partners and customers to join an anticorruption initiative, which now has more than 100 signatories. “I am seeing change, although clearly it is neither enough nor fast enough,” Boeckmann says. “But there is now an ability and a willingness to talk about the issue that wasn’t there before.”

This movement against graft faces its biggest test in the BAE Systems case. Anticorruption advocates are livid. “There are great concerns around the world about this decision to stop the investigation. It’s just what we tell everyone not to do,” says Huguette Labelle, chancellor of the University of Ottawa , who chairs the board of Transparency International, an anticorruption pressure group. She points to a glaring discrepancy in the behavior of the government of British Prime Minister Tony Blair, who spearheaded the eiti and has made good governance a cornerstone of his African aid policy. “It’s difficult to understand how the U.K. , which has demonstrated strength in leadership on this issue, could itself be stopping an investigation like this,” Labelle says.

Ever since the sfo announced it was dropping the case on Dec. 14, Blair has been plagued with questions. When it was signed in 1986, the deal with Saudi Arabia — known as the Al-Yamamah contract — was thought to provide a guaranteed stream of revenue for the British aerospace giant and safeguard thousands of jobs in the U.K. An extension of the deal, involving the sale of Eurofighter Typhoon jets, was agreed just last year. For Blair , Britain ‘s ties with the Saudis are paramount. “My advice was that this investigation would do enormous damage to our relations with Saudi Arabia,” Blair told Parliament on Jan. 17, citing the Saudi role in combating terrorism. Blair also said that ending the contract could cause “thousands” of British jobs to be lost.

Perhaps they would be. But Article 5 of the o.e.c.d. convention specifically states that neither national economic interests nor foreign-relations priorities should influence bribery investigations. If Britain gets away with shrugging off the convention’s terms, it’s hard to see what will be left of it. The convention has no mechanism for sanctioning governments other than peer pressure, and activists like Transparency International’s Labelle fear “national security” may become an unofficial but accepted exemption. At the March meeting, British officials will once again be grilled on the case.”We have to think through some difficult issues,” says Pieth, the working group’s chairman. No kidding.