Week of July 29, 2002
Snapshot from the Field
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Real Estate Gets Unflattering Report Card
Survey: Corporate Bribery Common in Emerging Market Nations
by JACK LYNE, Site Selection Executive Editor of Interactive Publishing and ADAM BRUNS, Site Selection Managing Editor
PARIS Imagine, for a moment, some devious soul, furtively angling for a foreign firm's bribe in exchange for his company's business. Where would this underhanded fellow turn?
Well, he could pretty much forget about Australian, Swedish and Swiss companies. His best bets among the foreign batch would be the Russians, the Chinese and the Taiwanese.
But for an even better bet, he should look to his friendly local companies. They're far more likely to grease his palm with kickbacks.
That seamy scenario is just part of the picture in the 2002 "Bribe Payers' Index" (BPI), recently released by Transparency International (TI at www.transparency.org), a Berlin-based organization whose mission is "curbing both international and national corruption."
The BPI has some unsettling things to report on how some companies are doing business in emerging market nations. Significantly, TI's fourth annual bribery report comes smack dab in the middle of "corporate Watergate," with a mounting firestorm of criticism over the rash of high-profile cases of business corruption.
"The laws are not being properly enforced," TI Chairman Peter Eigen said in releasing the report in Paris. "Our new survey leaves no doubt that large numbers of multinational corporations from the richest nations are pursuing a criminal course to win contracts in the leading emerging market economies of the world."
Real Estate, Light Manufacturing
Conducted by the Gallup International Assn. (www.gallup-international.com), the survey ranked 17 business sectors in 15 emerging market nations: Argentina, Brazil, Colombia, Hungary, India, Indonesia, Mexico, Morocco, Nigeria, the Philippines, Poland, Russia, South Africa, South Korea and Thailand. Those nations were selected, said TI, because they are "are among the very largest such countries involved in trade and investment with multinational firms."
Considered as a separate entity, "real estate and property" ranked as emerging markets' fourth most bribe-friendly sector.
That score came from respondents being asked: "How likely is it that senior public officials in the following business sectors in this country would demand or accept bribes, e.g. for public tenders, regulations, licensing?" Real estate and property finished with a score of 3.5, compared to the mean average of 4.0 for all 17 business sectors. (Sectors were ranked from 0 to 10, with 0 representing "very high perceived levels of corruption." See accompanying chart for sectors and rankings.)
Faring far better, though, were a number of other sectors with strong real estate connections. "Light manufacturing," for example, was part of a three-way tie as emerging markets' least likely sector to demand or accept bribes. And "heavy manufacturing" was rated the sixth least bribe-friendly sector. It was the public sector, though, that accounted for the BPI's biggest offenders. "Public works and construction" (with a 1.3 score) was voted the most bribe-prone business sector, followed by "arms and defense" (1.9).
"The BPI shows that the most flagrant corruption is seen in the public-works and construction sector and in the arms and defense sector, both plagued by endemic bribery by foreign firms," TI Advisory Council Chairman Kamal Hossain said at a separate press conference in Hong Kong. "In a new study by the UK chapter of TI, for example, it is estimated that foreign bribery is associated with tens of billions of dollars of defense deals," Hossain added.
Official: Russian, Chinese Bribery
Australian, Swedish and Swiss firms were respectively ranked as the least bribe-prone. The most bribe-disposed firms hail from Russia, the People's Republic of China and Taiwan, according to the report.
TI Chairman Eigen singled out Russian and Chinese companies for bribery "on an exceptional and intolerable scale. The extent to which companies from Taiwan and South Korea use bribes abroad is only marginally less."
But some other very prominent developed nations also ranked high among the most bribery-prone countries. The survey's top 10 nations most prone to corporate bribery, in fact, included four members of the powerful Group of Eight countries: Italy (ranked No. 5 as most bribe inclined), Japan and the United States (tied at No. 8) and France (No. 10). All four nations, in fact, scored below the survey's average of 5.8.
But graft begins at home, the BPI survey suggested. "Domestic companies" were ranked far and away as the most prone to bribery. Homegrown firms' score of 1.9 was fully 40 percent worse than Russia, voted the most bribe-friendly foreign nation.
"The authorities of all of these countries have serious domestic corruption problems," Eigen said of the surveyed nations, "and need to clamp-down on domestic bribery and the propensity of their exporting firms to bribe foreign governments."
Little Impact from OECD Anti-Bribery CommitmentThe BPI report also found little evidence of any positive impact from the Organization for Economic Cooperation and Development's (OECD) Anti-Bribery Convention in 2000.
At that convention, the OECD overwhelmingly approved an agreement committing 35 signatory countries to adopt common rules to punish bribery. Until that vote, only the United States had such a law on the books: the Foreign Corrupt Practices Act, which was adopted in 1977 and specifies criminal prosecution for U.S. companies charged with violation.
Only 19 percent of the BPI's surveyed respondents from emerging nations said that they were "familiar with" or "knew something about" the OECD Anti-Bribery Convention. Of that number, 35 percent - 7 percent of all respondents - said that their companies had enacted programs for anti-bribery compliance.
"According to the BPI data, the [OECD Convention] does not seem to have made any difference so far to the bribery approaches of many multinational firms," said Eigen.
Founded in 1993, TI is a nonprofit, non-partisan organization with chapters in more than 80 countries. TI has a number of corporate members and donors. Ralph Nader, in fact, characterized TI as "business-oriented" in The Nader Page. TI, however, explicitly states that the organization will offer no protection to corporate affiliates that are accused of involvement in corruption.
©2002 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.