Arrested development: the fight against international corporate bribery.

• Author: Heineman, Jr., Benjamin W.
• Position: Essay

IN THE last 15 years, there has been growing recognition that corruption--including bribery, extortion and misappropriation--has a particularly insidious impact on developing nations. It distorts markets and competition, breeds cynicism among citizens, stymies the rule of law, damages government legitimacy and corrodes the integrity of the private sector. It is a significant obstacle to development and poverty reduction. It also helps perpetuate failed and failing states, which are incubators of terrorism, the narcotics trade, money laundering, human trafficking and other types of global crime. Despite strong reasons for addressing these issues, the developed world's efforts to stop emerging market bribery by its own corporations have been uneven at best.

In one of the worst examples, Prime Minister Tony Blair announced in December last year that, for national-security reasons, the British government had stopped investigating bribery allegations involving British Aerospace Systems' (BAE) lucrative Al Yamamah contracts for the sale of British fighter planes to Saudi Arabia.

According to news reports, several billion dollars may have been paid by BAE, the UK's largest defense contractor, to members of the Saudi royal family to secure past and present fighter orders, quite possibly with the knowledge of the British government. Then-Attorney General Lord Goldsmith pronounced infamously: "It has been necessary to balance the need to maintain the rule of law against the wider public interest."

The Al Yamamah investigation was initiated as part of Britain's obligations under the Organization for Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. That convention, adopted in 1997, commits the parties to enact and enforce national laws making foreign bribery by their corporations a crime. The parties include the world's leading industrialized nations, which are home to most of the major multinational companies. The goal was to address the "supply side" of global corruption and create a level playing field for developed-world corporations through serious sanctions when foreign bribes are paid to procure business, especially in the developing world.

The termination of the Al Yamamah investigation threatens the OECD Convention by opening a dangerous loop-hole. Even before Blair's announcement, Britain had been a notorious laggard in implementing the convention. Now its blunt, unilateral use of the unauthorized and unreviewed "national security" rationale raises the specter of other nations halting sensitive investigations, using that reason as a pretext, when their real motives are promoting national commercial champions and avoiding worldwide embarrassment.

As the OECD Convention approaches its tenth anniversary, it is time to take stock of the convention's past, present and future and to examine the broader question of how to make companies in developed nations stop bribing. This is a story of tension between an important global commitment and parochial national interests, with some progress and some setbacks on the troubled road from words to deeds. The ultimate goal of the OECD Convention is to deter multinational corporations' (MNCs) wrongdoing and thus to encourage them to build robust compliance programs. But sustained implementation and ultimate effectiveness of the convention will require a change in the politics of the OECD, the signatory nations and their corporations.

The Convention and the Anti-Corruption Agenda

THE ADOPTION of the OECD Convention a decade ago was widely regarded as a major breakthrough, with 34 (now 37) leading industrial countries agreeing to make foreign bribery a crime under their national laws. Previously, foreign bribery was a crime only under U.S. law (the Foreign Corrupt Practices Act of 1977). In fact, foreign bribe payments were treated as tax-deductible business expenses in many nations. However, widely publicized corruption scandals in several important OECD countries--including France, Italy, Germany and Belgium--combined with a renewed U.S. effort and strong leadership, led the OECD Ministerial to conclude in the spring of 1997 that a convention making foreign bribery a crime should be drafted. The finished product was signed in December of that year and, after ratifications, it became effective in 1999.

The convention is part of a broader anti-corruption agenda. If the OECD strategy doesn't work, it seriously undermines the developed world's credibility in other initiatives. This raises the danger that the broader war against corruption may, in the foreseeable future, be characterized by empty rhetoric and little progress.

The most fundamental strategic approach to combating corruption requires developing nations to create durable, transparent and accountable institutions, which can order fundamental economic, political and legal affairs free from illicit influences. Such institution-building is also vital if they are to achieve economic growth and better the lot of the poor. The set of forces that will start and sustain this process is complex. Each nation has its own history and culture and is at its own stage of development, from failed and failing to rapidly rising.

Multilateral and bilateral donors have sought to help jump-start this capacity building. The World Bank and the UN Development Program fund programs aimed at particular anti-corruption processes (improvement...