Bribery and Corruption in International Business - Research Paper Example

Bribery and Corruption in relation to International Business Corruption is a leading cause and a result of poverty in the community. These vices have become a way of life in many countries. Corruption and bribery affect the way international business gets conducted. Even though, corruption and bribery is illegal in most of these countries, the practices are still a way of doing business. Bribery and corruption in the global business has been receiving serious attention from intergovernmental bodies, chambers of commerce, nongovernmental organizations, governments and the civil society. This is because bribery and corruption imposes large costs on conducting business, misallocates a nation’s resource, undermines the efficiency of a market and it also distorts competition. Bribery encourages unethical practices, erodes the public trust on their leaders, undermines significant development projects and slows down the economic growth of developing nations (Tanzi 20). Bribery becomes defined as the practice of giving something, usually money, to influence an individual in the execution of his/ her duties. Bribes are not only in the form of money, but also other advantages such as offering to pay for someone his/ her travel costs. Bribery also involves a business firm from one country giving financial or non financial benefits to officials or executives of other countries to gain a commercial benefit. Corruption, on the other hand it gets defined as the use of the public office for personal gain (Montagnon 13). The ever increasing growth in investment and the international trade in a number of the past decades have become accompanied by an increase in corruption and bribery. According to the World Bank, it has become estimated that nearly 5 percent of exports to the developing nations goes to the corrupt officials. It gets shown that nearly over a trillion dollars get paid as bribes each year (Cohen 24). Bribery is costly to the nations where it is prevalent. According to surveys done, money lost to bribery and corruption is the biggest potential source of funding available to a number of new democratic governments aside from direct foreign investment. Tackling the issue of bribery can lead to an increase in the national income and stimulate the economic growth, which in turn will lead to improvements in the quality of life. A reason for the rapid growth in corruption in the global market is due to the privatization of public enterprises globally. This has become accelerated by governments and the western creditors, and executed in a way that allows the multinational companies operate with impunity. These multinationals get supported by their governments and their respective agencies that give them room to participate in the practices at a vast scale. Most governments and the donor agencies like the International Monetary Fund create anti poverty and proper governance agendas, but what they do send different messages about where their priorities lay. Stern action against corruption and bribery has to include sanctions by developing countries against these multinationals that engage in these mal practices. Effective political transparency to disengage the room under which corruption exists (Montagnon 33). To these multinationals, bribery and corruption ensures they get contracts which they could not have succeeded in getting, or to do so in clear terms. Annually, these multinationals pay large sums of money in bribes to get a friend and to influence contracts. These bribes become estimated to be 80 billion US dollars (Cook 26). This is the same amount UN estimates to be able to eradicate poverty in developing countries. The US Commerce Department provided the report that in the 5years preceding 1999 bribery was a serious issue in commercial contracts that were worth US $145 billion. In the 1996 issue of the magazine World Business, it got reported that bribes amounting to $ 3 billion got paid by the German companies. The French secret service report showed that nearly $2 billion became paid by the export credit agencies as bribes to the foreign purchases of the defense equipments. Though these bribes could be prevented, it is always difficult to detect them. Most of the corporations that get involved in this mal practices do not get involved physically but employ the services of agents. The agents get 10 percent of the fee if the contract goes through, and who have the necessary funds to ensure the contracts succeed. Bribery also takes the form of commissions and inflated prices. In the contracts given by the export credit agencies, like commissions got added in the costs and hence in the entire contract covered by the guarantee. These types of practices encourage bribery indirectly. Bribery has always been seen as a normal business practice. Countries like Germany and the UK treated bribes as an expense that is legitimate to the business, and it could be claimed for the purpose of tax deductions (Cook 46). Corruption is a serious problem to the entire public and also the public authorities. This is because it makes the goods and the services provided expensive. It also undermines the development of a nation and also distorts the nation’s democratic process. Money lost to these practices should be channeled towards public utilities and to the advancements of the democratic institutions which is essential. According to Transparency International 5 percent of the public finances go towards people’s pockets. Whether in, Africa, UK or Asia corruption affects the poor significantly. Corruption leaves the poor poorer, since they are the ones who will lose out on the money that could have become used in improving the amenities or the living standards. According to Hugh Bayle a British Member of Parliament, the ultimate cost of bribes falls on to the poor in the society. When a contractor who is corrupt from the country or a different one pays a bribe, he will add that amount to the price of the contract. His business the power station will cost more, and those who purchase his electricity will be the one to pay the effects for the bribe. Bribery can be defined as the direct transfer of money from the poor in the society to the rich (Cohen 63). Corruption became said to have developed and evolved in the European countries that embarked on the practices like contracting out and privatization. In Britain, the biggest corruption source is the enormous public concessions and contracts to the private companies. These have increased under the issue of privatization. The award of contracts is where the majority of corruption claims got found. In the UK bribery appears to be a normal occurrence for the majority of the Companies. These organizations employ people to recover the bribes if the recipients have not delivered the promised item. Back Vincent Carratou, the founder of an investigation firm, stated in an interview that his job was not to investigate the working bribes but to get back the individuals who have failed to deliver on their promise. Majority of the UK multinationals pay commissions to receive contracts from other governments, and according to a report conducted, at least one government minister became involved in the process. An Ex Minister of defense Jonathan Aitken got jailed in 1999 because of his lies about his frequent visits to Switzerland and France. He was attending secret meetings to participate in the negotiation of contracts for an arms deal (Cockroft 77). 3 different UK companies got lined up to get the contracts, to obtain contracts to supply a number of weapons systems to Saudi Arabia, after they had paid stipulated commissions into a Swiss bank accounts for the Saudi agents. France also introduced the systems of the privatization of the public utilities through delegated management and contracting out (Cockroft 83). These systems led to increased competition, overcharging for offered services and the weak control over the companies that have become privatized. In the city of Grenoble, a former mayor and a government minister and a senior manager at a private water company Suez Lyonnais, got prison sentences in 1996 for accepting and offering bribes to award the water contract of the city to a subsidiary of Lyonnais. Both Suez and Vivendi, the largest construction companies in France have become constantly investigated for the misappropriation of funds. Bribes tend to push up the prices of projects. When these projects got paid for with borrowed money from the international community, bribery adds to the country’s external debt. The normal people are the ones who then end up paying back this through cuts in education, health and public services. The ordinary people are the ones who end up paying for this projects which will not benefit them. Westinghouse Electric Corporation in the United States is a superb example. The firm got a contract in the early 1970’s to develop the Bataan nuclear station in the Philippines. Reports allege that the firm gave the then President Ferdinand Marcos kickbacks amounting to $80 million. The nuclear plant cost $2.3 billion, an amount three times higher than a similar station built by the same company in Korea. The taxpayers in Philippines have so far spent $1.2 billion in servicing the plants debt. This is even after the fact that the plant has not generated a single watt of electricity, since it became developed at the foot of a potentially explosive volcano. The government in Philippines is still paying about $170000 each day in interest on the loans that got taken to finance the nuclear station (Drunne 89). This got expected to continue up to 2018. This is a distressing and inhuman thing since the money that could have become spent on providing basic amenities like hospitals get used to service the debt. The companies benefit immensely by bribing the high level officials by getting increased profits and reduction in the risks they might encounter. According to the World Bank, a high level of corruption takes place in a number of power projects in Asia. The suppliers tend to overestimate the available demand for electricity. 21 Western companies became investigated in Pakistan by the countries anti corruption agencies. This happened in 1998 after a number of alleged kickbacks to the former government of Benazir Bhutto and also for charging of higher prices to commodities. This government had signed a number of contracts with different power companies, a number of which were for the installations of electricity in totally inappropriate regions (Tanzi 48). These installations were going to produce a lot of energy than the country could possibly use until 2010. Nevertheless, the government became required by the signed contracts, to purchase all of the produced electricity. 6 of the companies contracted to install electricity confessed to offering of bribes. The allegations were so serious that the World Bank had to send in a special group of investigators. Even though, the country gained commendations from the Western governments for their efforts in fighting corruption, it got warned by the US, British, Canadian and the Japanese governments that its conflict with the power companies would discourage investors from investing in the region (Michael 63). Bribery also got used to get around oppositions to a project and also the democratic stages involved when giving contracts. MINDEX, a Norwegian mining company plans on carrying out cobalt and nickel mining on the Mindoro Island in Philippine. The local community is, however, reluctant to accept the project since it will damage the favorable environment. The company has responded to the claims by trying to buy off the local leaders. The politicians in the local authority got gold watches at the vital stage of the projects Environmental Impact Assessment. This assessment was to show that the mine was acceptable to the local community. MINDEX paid the District leaders to attend a study tour to a luxurious island for their holiday, got the local priest a new house and even went as far as paying the local journalists to write favorable articles about the company. The residents believe that the gifts are a way of manipulating the local tradition of the debt of gratitude towards the people who will carry out small generosity acts, and could also be against the Filipino law (Vargas 35). Other international corporations use bribes to get around the environmental regulations. A survey conducted in Papua New Guinea on logging in 1980, showed that corporations roamed the countryside with the protection of the robber barons, bribing the leaders and the politicians, creating tension among the communities and ignoring the laid out laws in an attempt to export the remaining remnants of timber. Bribes also come in forms of illegal political donations (Baird 1999). An audit done in 1999 by the government of Nicaragua showed that a Canadian Company, Greenstone Resources, that controls nearly 70 percent of the mined regions of Nicaragua, gave President Arnold Aleman $20000 (Vargas 47). The firm became alleged to have made other donations to different individuals in the Aleman’s Constitutional Party, and bribes to the local officials in the region where Greenstone was mining. To represent a token of appreciation, the corporations have become constantly allowed to escape with avoiding environmental regulations and laws. The firm carries out unlawful logging within the mining region, and constantly pollutes the water sources and the environment without caring for the health of the people. The company has continued to receive favorable environmental assessments despite such evidences from the Nicaraguan officials. The Environment Ministry personnel only visit the firm after requests by the company or the company has paid them to do so (Baird 39). As the World Bank and the Western governments together with the IMF continue to shout loudly about corruption, their policies are the ones making it hard to fight the vice. The problems are the privatization, deregulation and the structural adjustment policies that require the reforms of the civil service and the economic liberalization. According to the World Bank, any reform practice that will increase the competitiveness of the selected economy will reduce tremendously the incentives for corrupt behaviors (Drunne 53). Policies that tend to remove entry barriers to the private industry, and privatize the state firms in a way that will ensure competition will support the corruption fight. World Bank has refused to take back the claim. It has continued to claim that bribery and corruption cab be fought through deregulation of the system of the economy; the public sector reform in sectors such as tax administration, customs, strengthening of the anti corruption and the audit bodies and also decentralization. Empirical evidence suggests that apart from reducing corruption, and the design in which they are to be implemented, have in a number of instances increased levels of corruption (Nash 65). Ways of battling Corruption and Bribery The World Bank in 1998, decided to set up a sanctions committee to provide investigation to the cases of corruption by the corporations involved in the bidding for or taking out a World Bank backed contract. The committee meets regularly to check on investigations and to debar the firms that became found guilty. It has also undertaken to publish a list of all debarred firms. The UK government can take action against the companies that got sanctioned by the World Bank. The government is also able to ensure that no OECD or Western corporation sanctioned by the World Bank or any other financial institution, or charged in any nation in the world, gets contracts with other national institutions. The British government is also able to ensure that there are strict binding corporate compliance programmes in all the contracts at the national or the international level. Non Governmental Organizations are also requesting for an international public index of the corrupt companies. At the moment, Transparency international publishes a regular annual bribery perceptions index (Montagnon 76). Governments should clean up their acts. This can be achieved by working in a clean environment, where the donors are not creating inappropriate and hasty policy changes, where the resources and the time permit true participation in the social and economic decision making. Also, the international agencies that are not added to the corruption incentives. Organization for Economic Cooperation and Development (OECD) Convention in the Combating Bribery committed by Foreign Public Officials in the International Business Transactions became developed by the developed countries, to fight corruption and bribery. The parties get obliged by the convention, to criminalize the bribery of the foreign public officials in their conduct of the International Business. It refutes the activities of the people who offer bribes, promise or even pay for them. The convention became seen as a supply side agreement that seeks to affect the behaviors of companies in the exporting nations. The Convention came into in existence in 1999, and by 7th June, all of the 35 signatories in the conventions had the laws on their systems making bribery a criminal offence that can be prosecuted in a law court (Cohen 87). All the involved parties should take significant steps in response to the reports about bribery of the foreign public officials, and to prosecute cases where there are facts that justify those actions. Effective enforcement of the various parties’ respective laws on the implementation of the convention gets required to maintain the convention as an efficient anti corruption instrument. Also programs to promote sound governance and address the issue of corruption more widely contributes to the target of improving the national welfare within individual countries. The accountability and transparency in the governance are essential foundations of favorable economic progress and their successful development and hence, constitute the primary objectives of country’s foreign policy (Nash 99) . . Works Cited Baird, N. "Forests of Hope." The people 15:2 (1999): 10. Print. Cockroft, L. "Defence contracts peraded by graft." Financial Times 9:4 (2000): 9- 10.Print. Cohen, N. "Guns and the Dome." News Statesman 20: 5 (2004): 8. Print. Cook, P. "Reflections on the privatisation in Developing countries." Privatization Lessons 8:4 (2006): 13. Print. Drunne, N. "World Bank helped Sharif in corruption Probe." Financial Time 56:6 (2001): 12. Print. Michael, L. "IMF deals brings relief for Pakistan IDPs." Power Economists 34:6 (2005): 14-15. Print. Montagnon, K. "Doubts at World Bank in infrastructure sell off." Financial Times 65: 5 (2002): 4-6. Print. Nash, D. "The Bahamas citizens say no to privatisation." The Guardian 22:5(2003): 18. Print. Tanzi, V. "Corruption around the world." the IMF report 34: 5 (2002): 2. Print. Vargas, O. "Corruption in Nicaragua." Christian Aid 34: 5 (2002): 14. Print. Read More