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Debate: Inducement payments

Earlier this month anti-corruption group Transparency International published its 2000 corruption perception index, which shows that Nigeria is perceived to be the most corrupt nation on earth.

This week we ask: Are inducement payments on overseas development projects ever defensible?

Yes

Inducement payments! How disgusting, how corrupt, how. . .Ugh!

Corruption is a highly charged emotive subject. Most people would immediately say it was totally unacceptable. James Wolfensohn, president of World Bank, is publicly committed to eliminating it from all the Bank's dealings.

What is the yardstick to be used when determining what is corrupt practice and what is acceptable, or is it all unacceptable? Clearly there has to be a framework and the best established one (accepted by many non-US companies including my own) is the US Foreign Corrupt Practices Act (FCPA) enacted in 1977. Attempts to globalise the FCPA have met with mixed success with agreement in 1996 for a rewrite of the Organisation of Economic Co-operation & Development tax laws and transparency calls by the International Chamber of Commerce.

On the other hand bribery is still a tax deductible expense in Germany.

So how does FCPA define corruption? It prohibits US companies and their overseas subsidiaries from making any offer, payment, gift or promise of money or thing of value to any foreign official for the purpose of obtaining or retaining business for any party.

Clear enough? Not when you look into the section entitled 'Exceptions and affirmative defences'. The FCPA permits payments to government officials for the purposes of expediting 'routine governmental action', for example obtaining permits, processing governmental papers such as visas and work orders, providing police protection and actions of a similar nature. Practically this means that you can pay an official to work faster.

Everyone who has worked in a developing country knows petty officials have the power to cause your project to grind to a halt. The FCPA recognises that this is not an ideal world, that these people get paid a pittance and that inducements are a practical necessity. Messy? Yes.

Grey area? Yes. Defensible? Yes (at least in law! ).

No

If we define 'inducement payments' as the personal enrichment of a person or a group of people from an 'under the counter payment' by a UK organisation in its attempt to procure an overseas development project then it is neither legally nor morally defensible.

My experience of working in the Middle East left me disappointed to observe both consultants and contractors who were regularly paying bribes either to win new projects or to ensure the smooth running of existing work.

In the short term this appeared to be successful.

Indeed it was often to the detriment of those who stood against bribery. However, greed or envy on the recipient side readily exposed this practice and the guilty parties on both sides had to face the legal implications of their actions.

The result was expulsion or imprisonment for the expat, imprisonment or worse for the nationals involved and a blacklisting of the expatriate organisation.

The short term profit might have been high but the long term impact was negative.

However it is the morality involved in the giving and taking of bribes which is most damaging, in that once exposed it destroys not only the integrity of those involved but the reputation of the industry and country implicated.

It is that integrity which will enhance the long term opportunities both for winning work and its satisfactory implementation on overseas development projects.

Bribery does not pay - it destroys.

The facts

Business professionals in emerging markets perceive construction as the most corrupt industry, according to a survey by Transparency International and Gallup.

Senior public officials in emerging markets are most likely to demand bribes for construction and public works projects, followed by defence contracts and oil and power.

Nigeria ranked highest in Transparency International's corruption perception index followed by the former Yugoslavia. Ukraine and Azerbaijan drew for third place, with Angola and Indonesia tying for fifth position. The least corrupt country in the survey was Finland, followed by Denmark, New Zealand/ Sweden and Canada. The UK was the tenth cleanest country.

For nations exporting to emerging markets, a 1999 Transparency International/ Gallup survey ranks British companies as seventh most likely to pay bribes to senior public officials to secure export orders. Least likely to pay bribes are Swedish companies, followed by Australian and Canadian. Chinese companies are most likely to pay bribes, says the report.

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