[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
THE FIGHT AGAINST CORRUPTION: THE UNFINISHED AGENDA
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HEARING
BEFORE THE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 20, 2000
__________
Serial No. 106-185
__________
Printed for the use of the Committee on International Relations
Available via the World Wide Web: http://www.house.gov/
international--relations
______
U.S. GOVERNMENT PRINTING OFFICE
69-716 WASHINGTON : 2001
COMMITTEE ON INTERNATIONAL RELATIONS
BENJAMIN A. GILMAN, New York, Chairman
WILLIAM F. GOODLING, Pennsylvania SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa TOM LANTOS, California
HENRY J. HYDE, Illinois HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey ENI F.H. FALEOMAVAEGA, American
DAN BURTON, Indiana Samoa
ELTON GALLEGLY, California MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina ROBERT MENENDEZ, New Jersey
DANA ROHRABACHER, California SHERROD BROWN, Ohio
DONALD A. MANZULLO, Illinois CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California ALCEE L. HASTINGS, Florida
PETER T. KING, New York PAT DANNER, Missouri
STEVE CHABOT, Ohio EARL F. HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South BRAD SHERMAN, California
Carolina ROBERT WEXLER, Florida
MATT SALMON, Arizona STEVEN R. ROTHMAN, New Jersey
AMO HOUGHTON, New York JIM DAVIS, Florida
TOM CAMPBELL, California EARL POMEROY, North Dakota
JOHN M. McHUGH, New York WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas GREGORY W. MEEKS, New York
RICHARD BURR, North Carolina BARBARA LEE, California
PAUL E. GILLMOR, Ohio JOSEPH CROWLEY, New York
GEORGE RADANOVICH, California JOSEPH M. HOEFFEL, Pennsylvania
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
Richard J. Garon, Chief of Staff
Kathleen Bertelsen Moazed, Democratic Chief of Staff
Hillel Weinberg, Senior Professional Staff Member and Counsel
Shennel A. Nagia, Staff Associate
C O N T E N T S
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WITNESSES
Page
Kwasi Abeasi, Director-General, Private Enterprise Foundation,
Ghana, Assistant Governor, Rotary District 9100 (Africa)....... 9
Fritz Heimann, Chairman, Transparency International USA.......... 7
Robert Klitgaard, Dean, Rand Graduate School..................... 15
Roberto de Michele, Ministry of Justice and Human Rights,
Argentina...................................................... 13
APPENDIX
Prepared statements:
Hon. Christopher H. Smith, a Representative in Congress from the
State of New Jersey............................................ 29
Kwasi Abeasi..................................................... 34
Fritz Heimann.................................................... 30
Robert Klitgaard................................................. 50
THE FIGHT AGAINST CORRUPTION: THE UNFINISHED AGENDA
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WEDNESDAY, SEPTEMBER 20, 2000
House of Representatives,
Committee on International Relations,
Washington, DC.
The committee met, pursuant to call, at 2:20 p.m. in Room
2172, Rayburn House Office Building, Hon. Benjamin A. Gilman
(Chairman of the Committee) presiding.
Chairman Gilman. The Committee on International Relations
meets today in open session to receive testimony on ``The Fight
Against Corruption: The Unfinished Agenda.''
We have a distinguished international panel, and I want to
welcome you all today. I will introduce you shortly. I also
want to note that we are disseminating this hearing over the
Internet at the same time as we are taking your testimony.
The Committee on International Relations has a long-
standing interest in the problem of international corruption.
We are, of course, concerned with the problems that our
American firms face when they are required to compete in
foreign markets against companies which are able to give
bribes. We don't want to see Americans disadvantaged and
markets lost.
But this is not the sole reason or even the main reason for
our Committee's concern. A fundamental goal of American foreign
policy is the promotion of growth and stability abroad, because
it is good for our Nation, and it is good for the individual
human beings around the world. Corruption, though, undermines
the basis of that growth and stability, particularly in the
developing world. It deters investment, it wastes precious
external and internal resources, it demoralizes entrepreneurs
and ordinary citizens who deserve good government. Corruption
defeats democracy because those corruptly enriching themselves
will be unwilling to turn power over to democratically elected
successors. They therefore have an added incentive to entrench
themselves in power. The corrupt have an additional unfair
advantage because their ill-gotten gains provide them with the
resources to widen their advantages over any opposition.
It is clear, however, that tremendous progress has been
made in recent years on this issue. The private sector, led by
organizations such as Transparency International, has done a
tremendous job in nurturing grassroots networks in support of
anticorruption efforts. The government, business and
individuals supporting efforts such as those by TI have really
begun to pay off.
Brave and able government authorities have shown that in
many governments, impunity for the corruption is a thing of the
past.
The current administration deserves both high marks for its
efforts on several fronts. It led the consensus that achieved,
among other things, the OECD Anticorruption Convention.
Diplomatically and through the development assistance program,
it supported a wide range of anticorruption efforts, and has
prevented the anticorruption movement from becoming a name-
calling, us-versus-them exercise.
International organizations such as the OECD and OAS have
also played extremely important roles.
Present in our audience today and at the witness table are
many individuals who will be taking part in an anticorruption
summit tomorrow through Saturday over in Arlington. I want to
thank the participants for their very important work they are
doing, along with our colleagues who could not travel there. We
will be doing all we can to support you.
I especially want to thank the conveners of the conference,
the International Consortium on Governmental Financial
Management, its supporters and sponsors, such as AID and GAO,
those from our government and international organizations who
will be addressing them, and particularly Jim Wesberry of
Casals, who is busy coordinating the conference, but has found
time to advise the Committee on this hearing.
I also want to salute our Ranking Democratic Member, the
gentleman from Connecticut, Mr. Gejdenson, who sponsored the
legislation that was recently passed in the House and which
should go to the President soon that is reemphasizing and
strengthening our government's anticorruption efforts.
We question where has the most progress been made and what
needs to happen next? Surely the conclusion of the OECD and the
Inter-American Conventions are highlights of the recent years.
However, the administration reports on the status of the
OECD Convention makes it clear that much still needs to be done
to choke off the supply of corrupt dollars flowing from rich
nations to the rulers of the developing nations. The Convention
will not work if it is not transposed into a good national law
and those laws are not enforced.
In that regard, the OECD needs to step up its monitoring
and enforcement efforts. In addition, our OECD partners need to
establish internal corporate and accounting controls in
businesses resident in their various nations, for without a
paper or electronic trail, there will be no way to prosecute
those who would ignore or violate the standards of this
important Convention. We need more tangible actions and less
lip service from Convention signatories.
I would also call on other key exporting nations in all
regions of the world to consider joining this Convention and
strengthening their supply-side anticorruption efforts. More
attention needs to be addressed to developing institutions in
developing countries so that they can do more for themselves
and in cooperation with other nations and with international
organizations to build structures and effective public opinion
against corruption.
We need to consider more carefully how to help the
countries of the former Soviet Union and in the former Soviet
bloc deal with the vast array of ills that are exacerbated by
corruption, and we need to address those problems squarely.
Our panelists today are going to offer their own
perspectives of what the most important remaining problems are
and on where we need to go. We can theorize about this, but, to
do our best job, we need to hear the voices of those involved
in the struggle. So, again, we thank our panelists for being
here. After other Members make whatever comments they may wish
to offer, I will introduce our panelists.
At this time I call on our Ranking Minority Member, the
gentleman from Connecticut, Mr. Gejdenson.
Mr. Gejdenson. Thank you, Mr. Chairman. It is clear that
America's leadership in anticorruption issues started in the
early and mid-1970's with the Foreign Corrupt Practices Act. I
can remember companies in my own State complaining about being
handcuffed in those days as a result of our restrictions on
bribery to foreign government officials, how it disadvantaged
us. But I would say that time has won them over to our side,
most of the companies I talk to are, obviously, not happy in
situations where other governments, even some of our closest
allies like France, apparently, allow the deductibility of
bribes in contract competition. They have made us a commitment
they will repeal the deductibility of bribes given, and I think
American companies now get that it is the right course of
action.
We need to only look at not just what has happened in our
hemisphere. In Africa and Asia, democracies are threatened by
corrupt practices of the government. The new democratic
government in Nigeria is struggling to undo decades of corrupt
action by military leaders who plundered billions of dollars
from a very wealthy country, left their people impoverished and
a failing infrastructure.
We can see the impact on American business as well in
estimates that as much as $26 billion may have been lost in the
last 6 years alone. I can tell you from small and large
companies in my own State, that oftentimes we find our closest
allies bending, if not breaking, the rules of international
commerce with financing mechanisms or other encouragements
that, if not bribes, come darn close to bribes. Nobody wins in
this process.
But I am heartened to see that the effort started by the
Vice President at the Global Conference on Fighting Corruption
has begun to take hold, that the G-7 is ready to take important
action, that the action that this Congress passed with my
legislation with the strong support of the Chairman on
anticorruption issues is an important beginning.
What I want to make sure people understand is this is not
just about making American companies more competitive. It is
that. We want American companies to win when they are in an
economic competition. But if we believe in democracy, and we
want to build a system where the world has faith in its elected
leaders, we need to make sure that we get rid of corruption.
Corruption undermines democratic institutions, belief in
organized government, and it is something we all need to fight.
So we are thrilled to have all of you here and look forward to
hearing from you in your many perspectives.
Mr. Smith.
Mr. Smith. Thank you, Mr. Chairman. I want to thank you for
holding this very timely and important hearing on the issue of
combatting corruption, clearly a threat to global peace,
stability and prosperity, but particularly challenging to those
nations struggling to develop democratic institutions and the
rule of law.
The Helsinki Commission, which, as you know, I chair, has
undertaken a series of hearings on this important topic,
examining the breadth and the depth of the problem in the OSE
region and what steps the OSE can take as an institution to
combat corruption and organized crime.
Mr. Chairman, the cancer of corruption and organized crime
undermines public confidence in government and threatens
development of the rule of law in the very countries that are
trying to shed the legacy of communism and its corrupt and
repressive system.
Widespread corruption in the transition countries threatens
their ability to provide strong and independent legal regimes,
market-based economies and social well-being for their
citizens. Corruption has stymied economic reforms in these
countries and impeded efforts to improve the standards of
disadvantaged peoples.
In the absence of the effective rule of law, Mafias have
flourished through their corrupt connections, gaining powers
over whole sectors of economies and derailing legislative
reform agendas inimical to their interests.
I would note that on July 17th, President Constantinescu
decided not to run in Romania for a second term, deciding
instead to devote his full time to the fight against
corruption. But he made the point that ``when I began this
campaign, I discovered a Mafia system had been created in
Romania in which the octopus-like front companies were
benefitting from high-level state institution support. This is
what made possible the fraudulent bankrupting of banks, the
destruction of the fleet, and the huge damage caused by the oil
and chemical-fertilizer Mafias and the unrestricted growths of
corruption.''
A recent EBRD report recognizes the reality of corruption
and calls for greater efforts among governments and
international organizations to depoliticize economic activities
and develop measures to constrain state capture by private
interests. As a result of this capture and siphoning off of
public wealth, citizens deprived in some cases of government-
sponsored basic support mechanisms have formed very negative
opinions about democracy and free markets.
Mr. Chairman, as a concrete example, during a Commission
hearing in March of this year regarding the human rights
situation in Turkmenistan, one of the most authoritarian and
repressive regimes in the region, opposition leader Avdy Kuliev
cited three components of President Niyazov's internal
politics, the first of which was corruption.
The fact that this Committee again is holding this hearing
and talking about corruption not solely in an economic sense,
but corruption in government and in public institutions, is in
itself refreshing. For a long time we could not even utter, or
some people did not want to utter, the ``C'' word.
Let me just say, Mr. Chairman, the Helsinki Commission has
pushed for a greater recognition of the threat of organized
crime and corruption in the OSCE and has supported efforts to
develop an OSCE strategy to combat them.
During the 1999 annual meeting of the OSCE Parliamentary
Assembly in St. Petersburg, Russia, our delegation called for
convening a meeting of the OSCE foreign ministers to develop
strategies to combat these threats. I introduced a resolution
there condemning cross-border trafficking in women and
children. We had a very robust debate, and the delegates from
all of the countries that make up the OSCE approved that
resolution, which we again approved this year in Bucharest when
we held another Parliamentary Assembly. Interestingly enough,
this year's focus was on the very matter of today's topic,
corruption, and all of its aspects and manifestations.
I would ask that my full statement be made part of the
record.
Again, I want to thank you for this very timely hearing,
and thank especially our witnesses for being here and for the
great work they do to try to mitigate corruption.
Chairman Gilman. Thank you, Mr. Smith.
[The prepared statement of Mr. Smith is available in the
appendix.]
Chairman Gilman. Mr. Menendez.
Mr. Menendez. I want to commend you also for holding the
hearing, Mr. Chairman, and the question of corruption is a
question of costs, enormous costs, I believe; the cost of doing
business certainly, but also the cost of corruption's
consequences for societies. The loss for businesses, for U.S.
firms is considerable. The State Department in a recent report
says that over the past 5 years, it has received more than 350
allegations of bribery related to international contracts worth
$165 billion. U.S. firms allege actual losses in this period of
$25 billion in contracts due to illegal bribes by foreign
competitors.
The financial incentives can be irresistible for any
individual firm. At any level, bribery hinders competition,
distorts trade and harms consumers and taxpayers, but I believe
the costs to society at large are even greater.
Corruption is about the rule of law, responsible
development, and citizens' faith in their government. A corrupt
society is a dangerous society. Corruption facilitates crimes,
destabilizes a society, and impedes all manner of economic,
political and social development. It undermines the rule of law
and democracy, and a lack of democracy is very costly indeed.
For example, in Peru right now, the government is putting
the country and the Peruvian people in jeopardy by risking
future investment due to corruption. Corruption in the tax
administration has made the government seek to make up for its
losses by illegally and illegitimately going after the tax
deposits of an American firm, an American firm that will
clearly send a message to the community in the United States
that it is not a country to invest in.
Also in Peru, Vladimir Montesinos, the feared and corrupt
head of the country's intelligence service, was caught bribing
an opposition political candidate. The bribes, and there were
certainly more than one, cost Peru democratic legitimacy. Maybe
catching the perpetrator may help bring it back.
Indeed, if you look at Transparency International's
Corruption Perception Index, you would see that the countries
at the bottom of the list are countries whose governments'
actions or inactions in terms of stemming corruption, promoting
democratic governance and investing in sustainable governance
have proven costly for their society.
In many cases, instability, a lack of democracy and even
war in these countries has forced the international community
to spend enormous amounts of money to help bring about peace
and democracy. Yugoslavia, Indonesia, Nigeria, for instance,
are all at the very bottom of the list.
It may be a stretch to suggest that corruption contributes
to poverty, intolerance and war, but I don't think so. I
believe that even disasters, and ensuing disaster relief funds,
would be lessened in terms of the cost if corruption were
reduced.
Witness Hurricane Mitch in Central America. Of course,
corruption didn't cause the hurricane or determine which
countries were hit, but the losses in the two countries most
affected, Honduras and Nicaragua, probably would have been
greatly reduced if corruption were not such a problem in those
two nations, which find themselves at the bottom of
Transparency International's list. Why? Corruption means that
less development and infrastructure money actually makes it
into building quality homes, bridges and roads. In other words,
in my mind, corruption actually can kill.
In conclusion, Mr. Chairman, I welcome the attention to
efforts at corruption reduction, and I urge increased resources
to combat corruption. I am a proud cosponsor of Mr. Gejdenson's
Anticorruption and Good Governance Act. I applaud his efforts.
I do wish the act authorized increased funding for the battle
against corruption, for the battle for democracy, but it is a
step in the right direction. I look forward to working with him
and you to achieve those goals.
Chairman Gilman. Mr. Faleomavaega.
Mr. Faleomavaega. Mr. Chairman, I want to certainly commend
and compliment your leadership and for calling this hearing
this afternoon, and certainly offer my personal welcome to our
distinguished guests here on the panel that will give us, I am
sure, their words of wisdom in trying to combat this very
issue. I would also like to commend the gentleman from
Connecticut for his sponsorship and authorship of this
important legislation.
I certainly echo the sentiments that have been expressed
earlier by my good friend from New Jersey, both gentlemen from
New Jersey, and their insights into this very important issue.
I don't think it has any limits in terms of what we talk about,
corruption. We can talk about the drug cartels, we can talk
about the syndicates, we can talk about all of this, we know it
exists, and I think it is very, very important that as well our
business community are not taken at a disadvantage when it is
all right to bribe officials of some countries and our
companies there can become disadvantaged as far as conducting
fair competition as far as the business climate is concerned.
So I think this legislation is very much appropriate, and I
think we need to do more, and I sincerely hope that the
interests in the Congress will not be in any way diminished in
pursuing this, not only certainly providing for our own
Nation's inadequacies and maybe failings as well in seeking to
go after corruption, but certainly as a demonstration of the
kind of example that we could lead or share our resources and
our understanding with our sister nations throughout the world,
hopefully that we can combat this very insidious and very
difficult situation that many nations of the world are
confronted with.
I thank you, Mr. Chairman. I yield back the balance of my
time.
Chairman Gilman. Thank you, Mr. Faleomavaega.
To our panelists, let me note we will be entering any of
your written statements you may wish to make into the record at
the hearing in full. Accordingly, I would ask each to please
proceed for 5 to 7 minutes, and then we can have an appropriate
dialogue.
Our first panelist today is Mr. Fritz Heimann. Mr. Heimann
was a founder of the Transparency International and is Chairman
of Transparency International USA. Mr. Heimann has a long
career of service in the General Electric Corporation, which
has itself been a great leader in the struggle against
corruption for all the right reasons. I think it is appropriate
to recognize GE's support of your personal efforts and its
leadership in this matter more generally.
Please proceed, Mr. Heimann.
STATEMENT OF FRITZ HEIMANN, CHAIRMAN, TRANSPARENCY
INTERNATIONAL USA
Mr. Heimann. Thank you, Mr. Chairman. I would like to
compliment the Committee for calling this hearing. Your title,
``The Fight Against Corruption: The Unfinished Agenda,'' is
extremely appropriate.
During the past few years, a good start has been made in
addressing international corruption; however, much more needs
to be done.
TI was established in 1993. Our headquarters are in Berlin,
Germany, and we have a network of national chapters now in over
75 countries. TI's first objective, placing corruption high on
the international agenda, has been largely accomplished. There
is now widespread recognition of the damage done by corruption.
This recognition is a big step forward from the time when
corruption was treated as a taboo subject by the international
community. The major challenge now is to prove that tangible
progress can be made to reduce corruption. There is still much
skepticism whether reform will work.
The current prominence of the issue gives us a window of
opportunity; however, that window will close unless we can show
successful results in the next 3 to 5 years. This requires
realistic priorities. We must be selective in focusing
resources, programs in countries where success can be achieved
in the next few years.
I will concentrate on the OECD Convention because that is
the most promising initiative so far and is closest to
achieving tangible results. Demonstrating that the Convention
will work will add momentum to the whole anticorruption effort.
It is strategically important because if the major
industrialized countries can show that they have cleaned up
their act, that will significantly strengthen their leverage in
trying to curb corruption elsewhere.
The OECD Convention is important because the member
countries are the home countries of most major international
corporations. Thus it becomes the ideal tool for controlling
the supply side of international corruption. Approximately 26
of the 34 signatories have now ratified, including 9 of the 10
largest exporters. This means that the necessary critical mass
is aboard. The focus now shifts to making sure that the
Convention is effectively implemented and enforced.
A key element of the Convention and the reason why we can
have confidence in it is that it provides a process of follow-
up monitoring. During the past year, the implementing laws
passed by 21 countries have been reviewed. The most telling
sign that the monitoring process is off to a good start is that
both the U.K. and Japan were given flunking grades by the
monitoring process. Not many international institutions have
the courage to criticize their largest members.
During the next 12 months, we need to make sure that
deficiencies in implementing laws are corrected and that the
eight remaining signatories ratify the Convention. Considerable
additional work is needed to make sure that the good intentions
of the Convention will be translated into practical results.
I will focus on four issues which I think deserve the
attention of this Committee; first, making phase 2 of the
monitoring process work. Early next year the OECD is going to
begin the second phase of its monitoring process, namely
assessing the effectiveness of national enforcement programs.
That will be the critical reality check to determine whether
the Convention is working. OECD teams will be sent to six
countries each year to conduct on-site reviews.
TI has made two suggestions to OECD to make sure that the
monitoring process works. First, we are convinced that much
more adequate staff and budget support must be provided. At
present only 3 out of the 1,800 employees of the OECD are
working in this area. As we move to evaluating enforcement,
this becomes a much more difficult task than the previous
effort to examine the adequacy of implementing laws, and that
will require much more staff support.
The monitoring process must also be made more transparent.
Public hearings should be held each time the OECD conducts a
country visit. Civil society and private sector exports should
be allowed to present their views and respond to questions from
the monitoring team. Making the monitoring process more
transparent remains quite controversial at the OECD. Many
countries prefer to conduct reviews behind closed doors. For
them, proposals for nongovernmental participation raise the
specter of Seattle-type confrontations. TI believes that a more
open process will improve public acceptance and reduce the risk
of confrontation.
The second step is to prohibit bribery of political party
officials. The OECD Convention as approved in 1997 prohibits
bribery of foreign public officials, but does not cover bribery
of foreign political party officials. In TI's view, this leaves
a dangerous loophole which will be increasingly exploited as
the prohibition of bribery of public officials goes into
effect. The U.S. has pressed for such coverage, but very few
other OECD countries were prepared to tackle this controversial
subject.
TI believes that the recent scandals involving Chancellor
Kohl and his party demonstrate that the time has now come to
close this loophole. To that end, we are organizing a high-
level international group to develop recommendations for
submission to OECD. The group will meet next month in Italy.
This meeting will be chaired by John Brademas, a distinguished
former Member of the House, and by Peter Eigen. A major effort
will be required over several years' duration to convert this
project into an effective move.
The third recommendation is to strengthen OECD's focus on
accounting, auditing and corporate controls. Last April, TI
submitted to OECD a detailed survey of current practices and
requirements in the financial area in 16 OECD countries,
including the 10 largest exporters. The survey was conducted by
a task force from the big five international accounting firms.
The study disclosed very serious deficiencies in most of the 16
countries.
Prohibitions against foreign bribery cannot be effectively
enforced unless there are adequate requirements for financial
accountability and transparency. TI has recommended that the
deficiencies identified in our report be dealt with during the
OECD monitoring process. To make that happen needs another
strong push by the U.S. Government.
The fourth need is to publicize the existence of the
Convention. Last fall TI published a survey called the
Bribepayer's Index which looked at 19 leading emerging markets
around the world. It showed that very few of the respondents,
only about 1 in 20, had heard of the OECD Convention. What is
most surprising is that respondents from major international
companies were just as ignorant as those from local companies.
TI has recommended that a major educational effort be launched
to make clear to businessmen, both in OECD countries and in key
foreign markets, that bribing foreign officials is now a crime.
Chairman Gilman. May I interrupt the witness? Would you try
to summarize? We have given you 7 minutes. We hope you can
summarize.
Mr. Heimann. I will be glad to stop here. There are a
couple of other points that are covered in my testimony, but I
will be happy to address that as part of any colloquy.
Chairman Gilman. Thank you very much.
[The prepared statement of Mr. Heimann is available in the
appendix.]
Chairman Gilman. Our next panelist is Mr. Kwasi Abeasi. Mr.
Abeasi is Director-General of the Private Enterprise Foundation
of Ghana, which is an umbrella body for business associations
in Ghana. Mr. Abeasi has held a variety of private sector
positions in the oil and industrial sectors. He has an MBA from
Syracuse, and was also trained at Harvard. Mr. Abeasi is also
Assistant Governor of the Rotary District 9100 in Africa.
Mr. Abeasi.
STATEMENT OF KWASI ABEASI, DIRECTOR-GENERAL, PRIVATE ENTERPRISE
FOUNDATION, GHANA, ASSISTANT GOVERNOR, ROTARY DISTRICT 9100
(AFRICA)
Mr. Abeasi. Thank you, Mr. Chairman. I consider this indeed
a privilege and an honor to make a presentation.
I have noted you rightly termed it ``unfinished agenda.'' I
hope in my short presentation I will be able to indicate what
efforts we are making in my country to make sure this fight is
successful.
Let me say at the outset I have decided to speak on the
subject not because I am the most appropriate person in Ghana
or that I am an expert, but only because I have in the past few
years been sufficiently involved in the fight against
corruption in Ghana as the private sector's representative. And
as the Director-General and also with Rotary, I have
experienced quite a bit of the fight to be able to talk about
it. I feel that from these two strategic positions, I have
enough experience to be able to give you some impressions.
I also hope that the impression that is given that the
whole of Africa is one vast block of corruption and that
nothing is being done would be corrected.
Mr. Chairman, corruption is not new, nor is it confined to
any particular part of the world. On the contrary, corruption
is a global phenomenon, although its severity differs from
country to country. For those of us in developing countries,
its effect is very devastating. The cost of corruption and its
effect on us is well-known, and it is so enormous that all
efforts must be marshalled to fight this war. Needless to say,
it is impossible to eliminate corruption, but with a concerted
effort, we believe that we can minimize it.
Previous efforts to combat corruption in Ghana, like
several countries, have been the effects of military
interventions. The justification for virtually every successful
or attempted military intervention in the Ghanaian politics has
included a tirade of criticism against the ousted regime for
fostering corruption and being the very embodiment of
corruption. This is usually followed by a promise to stamp out
the evil and to introduce probity, accountability and
transparency into the body politic. This, however, only proves
to be not true.
Previous national efforts to deal with the problem of
corruption have therefore centered around commissions of
inquiry, special tribunals, religious crusades, criminal
prosecutions and media exposure. In short, they tackled the
stem and branches of the problem and left the roots deeply
entrenched in the well-nourished soil of bureaucratic
incompetence and arrogance, pockets of influence amidst a sea
of large-scale poverty.
Corruption in Ghana has been a source of worry and a great
concern. Indeed, evidence to support this can be found in the
findings of the Global Risks Survey, TI's Perception Index, and
indeed in our President's own mention in sessional addresses to
Parliament and recently his address to the U.N. Millennium
Summit.
The perception that corruption is rife in Ghanaian society
is further collaborated by empirical studies conducted in 1998
by the Center for Democracy and Development, an independent
entity with which I am connected. The good news, however, is
that more people are now bold enough to talk and do something
about reducing corruption in the Ghanaian society. The verbal
onslaught on corruption in the Ghanaian society has been led by
the President himself.
In October 1998, we established the Commission on Human
Rights and Administrative Justice in conjunction with a number
of key stakeholders, including my organization, the Private
Enterprise Foundation. We staged a National Integrity Workshop
to create awareness of the social and economic costs of
corruption and to foster a positive and nonpartisan approach
toward combatting corruption. We also established the Civil
Fraud Office, which is also a constitutionally created
institution, in 1997.
In our strategies toward fighting corruption, we have
indicated that government may lead by example and commit
adequate resources to the fight. While this is acknowledged by
government, the political will to go the full distance in
punishing high government officials who are found guilty of
corrupt practices, however, needs to be demonstrated.
CHRAJ is one of the key institutions that we are using to
fight corruption. The Civil Fraud Office is also another
constitutionally created institution which came into effect in
1997 amidst controversy that it was an organ which government
intended to use against opposition members, and yet in its
short existence some effective work has been done.
The experiences of countries that have attained relatively
impressive successes in their struggle against corruption
indicate that a fair and living wage policy is crucial to the
successful implementation of any anticorruption program.
Attention has therefore been drawn to the low wages prevailing
in the country, and the government has to provide the Ghanaian
work force with a living wage that will serve to insulate some
of the most vulnerable groups.
We have also created a new role for the private sector.
Indeed, the OECD has just published the final report of the
seminar we had in Washington here on fighting corruption in
developing countries and emerging economies, the role of the
private sector. Because we were part of this seminar, we have
already started implementing some of the findings and
recommendations.
Recognizing the fact that for corruption to occur there are
always two parties, the corruptor, or the influencing source,
and the corrupted, the private sector acknowledged the fact
that very often the corrupting influence is from the private
sector. We therefore agreed to get involved in this fight for
the first time in my country in 1998.
It should also be borne in mind that both the local private
sector and the foreign private sector sometimes are guilty of
acts of corruption. To this end even though we know that the
foreign private sector is usually fairly governed by business
practices and regulations, sometimes there are a few of these
ones who condone this.
We have therefore decided in taking steps, new steps, to
combat corruption in my country and done three things. First of
all, we have looked at the areas of contracts and have set up
the SFO to look into all contracts and ensure that the possible
effects of corruption are minimized.
Secondly, we have also started drafting a code of ethics
and conduct along the lines of the Commonwealth Association for
Corporate Governance's Guidelines and Principles for our
business community to augment the Company's Code, which is also
being reviewed, and we will need assistance in this direction.
We want to fashion it along the directions of the King
Commission on Corporate Governance of South Africa.
We have also, with the help of the World Bank, established
the Ghana Anticorruption Coalition, on which I represent the
private sector. An action plan has been drawn up which would be
launched this coming Friday.
Finally, we also have started the Ghana Integrity
Initiative as a local chapter of TI in Ghana.
Civil organizations, like Rotary Clubs, are contributing
immensely by way of changing the attitudes of the business
professional men. In the 1989 Council of Legislation for Rotary
International, it was highlighted that business and
professional people must concentrate on the ethical
requirements of the vocation, as well as the laws of their land
and the moral standards of their community. Surely with these
noble objectives and declarations, the more Rotarians we have
in the country, the less corruption we will have in that
particular country. We have decided, therefore, to increase the
number of Rotarians in our country.
In conclusion, Mr. Chairman, let me say that we can
conclude or finish this agenda, or at least shorten the agenda,
if all of us, governments, development partners, civil society
and the private sector, will show a real commitment to this new
coalition of forces against corruption and augment each other's
efforts. We should try all we can to make resources available
to all the stakeholders or members of this coalition,
especially civil society and the private sector.
By the private sector, Mr. Chairman, I do not mean the so-
called nongovernmental organizations, but rather private sector
associations and institutions that can really be held
accountable for the use of these scarce resources. More mileage
will be obtained by tunneling these resources through credible
private sector associations which can keep the pressure on
governments to do more than just pay lip service. Most donor
groups, especially the Bretton Woods institutions, have always
cited their mandates as not allowing them to offer direct
assistance by way of resources to the private sector. I
believe, however, that these mandates are man-made and can
therefore be modified or changed.
Finally, let me also repeat the appeal of my President,
Flight Lieutenant J.J. Rawlings, to the U.N. Millennium Summit
that the fight against corruption will be greatly enhanced if
proceeds from these corrupt activities, especially by people in
leadership positions, which find their way into foreign bank
accounts in your countries, when detected are returned to the
countries concerned from whom the U.S. took them in the first
place.
I thank you very much for your attention.
Chairman Gilman. Thank you, Mr. Abeasi, who is also
incidentally the private sector representative on Ghana's
anticorruption commission. We thank you, too, for your work on
the Washington Conference Report on Corruption.
[The prepared statement of Mr. Abeasi is available in the
appendix.]
Chairman Gilman. Our next witness is Roberto de Michele.
Mr. de Michele heads the Transparency Unit of the Argentine
Ministry of Justice and Human Rights. An attorney, he is also a
teacher, an author and a translator. He is best known as a
corruption fighter in his own country, and is also consulted by
authorities around the world. He has a special perspective as a
citizen of a developed Latin American country to bring to us
today.
Please proceed, Mr. de Michele.
STATEMENT OF ROBERTO DE MICHELE, MINISTRY OF JUSTICE AND HUMAN
RIGHTS, ARGENTINA
Mr. de Michele. Thank you, Mr. Chairman, and thank you for
the invitation to this hearing.
Briefly I would like to first mention the current situation
in Argentina. Argentina is going through a process to increase
transparency and accountability in government, a process which
started showing some signs a few years ago when by decree the
first code of ethics in government was passed and an Office of
Government Ethics was created. By the end of last year, this
decree was transformed into a law, national legislation, which
includes rules for ethics in government for the three branches
of government, and also creating special obligations in terms
of conflicts of interest for public officials.
At the same time, the new administration which took office
in 1999 created by law the Anticorruption Office within the
sphere of the Ministry of Justice. The mandate of the
Anticorruption Office is to implement the rules and provisions
of the Inter-American Convention Against Corruption. In fact,
this office has two branches, two areas, one dedicated to
investigation and the other one dedicated to planning,
designing, proposing and implementing policies to increase
transparency, accountability, and reduce incentives for
corruption.
Some of the particular tasks that this office carries out
is investigation of past and current situations in which public
officials and particularly the executive branch might be
involved dealing with cases stipulated under the Inter-American
Convention as corruption.
The other area among the assignments the Direction for
Transparency Policies deals, with issuing opinions on conflicts
of interest of current officials in government. In fact, it has
issued so far more than 50 opinions, including Ministers,
Secretaries of State and officers of lower rank. The opinions
instruct public officials on such actions as selling of assets
and withdrawal from private activities that might conflict with
their public duties. It is also in charge of administering the
system of financial disclosure forms in which citizens can
track the possible evolution of assets of public officials and
therefore increase the social control that is needed as in any
sound policy to promote transparency.
Argentina is not only active within the sphere of the
Inter-American Convention, it also takes part in other forums,
such as the Financial Action Task Force dedicated to issues of
money laundering. It is active also within the United Nations
Center for Research on Criminal Issues and Justice, and is
working there on proposing an elaboration of the general
convention against corruption within the framework of the U.N.
Only 10 days ago, Congress in Argentina approved the OECD
Convention, which means that in a short time it will become
law. Our office is in charge now of analyzing the reforms to
our substantial legislation that the new convention will
require. The possible changes will be focused basically on
issues that have to do with money laundering and the possible
complementation or conflicts with the existing legislation on
money laundering.
Also it will have to deal with issues such as the ones
mentioned before by Mr. Heimann, referred to as accounting
procedures and rules in order to implement more standardized
and transparent ways in which corporations take notice of their
economic operations.
There will be also some recommendations in terms of mutual
assistance between judiciaries of different countries in
extradition. There is also going to be--part of the work will
focus on the idea of seizure of assets of people who are
allegedly involved in cases of corruption.
There has been a lot said and written on the effect of
corruption for the economy and the market, but let me perhaps
introduce a thought that not everyone shares. Corruption not
only has to be viewed as a problem, but perhaps as a
consequence of the problem. The basic problem is the lack of
rule of law and weak public institutions. You are aware, Mr.
Chairman, that unfortunately not all the world shares the
benefits of democracy and rights for the citizens and effective
government. If the question is what can be done in terms of
making more progress in this arena, I would say that a sound
strategy should include a long-term vision, which is promoting
the expansion of the rule of law and democracy around the world
as a more substantial basis on which to build an anticorruption
strategy.
In the short term, other actions can be implemented. We
believe that the monitoring process provided by the OECD
Convention is an adequate procedure by which different
countries can into a more elaborate and useful context in which
the rules of the game are fair for everyone, and therefore
offer adequate guarantees that nobody will be playing by their
own standards or unaccepted rules.
Referring to this kind of procedure or process, you are
probably aware that the OAS, the Organization of American
States, within the Working Group on Probity and Public Ethics,
will try in the short run to adopt measures that are similar to
the ones provided by the OECD Convention.
Going back to the question of what can be done on this
area, the exchange of expertise will probably help countries
involved in concentrating on the same focus or projects. In the
particular case of Argentina, we have a formal agreement with
the U.S. Government, particularly with the Office of Inspector
General of the State Department and the Office of Government
Ethics, that has proven useful and a successful way in which we
can exchange experiences and collaborate in fields of mutual
interest.
Again, Mr. Chairman, thank you for the time.
Chairman Gilman. Thank you, Mr. de Michele.
Our final panelist today is Robert Klitgaard, the Dean of
the RAND Graduate School and the Ford Distinguished Professor
of International Development and Security. He served as an
advisor to many governments on economic strategy and
institutional reform and has written seven books on a wide
range of public policy issues, including Corrupt Cities, a
Practical Guide to Cure and Prevention.
Welcome, Dean Klitgaard. You may proceed.
STATEMENT OF ROBERT KLITGAARD, DEAN, RAND GRADUATE SCHOOL
Mr. Klitgaard. Thank you very much. It is a pleasure to be
here this afternoon with you.
One part of the next agenda in fighting corruption is how
to invite in even more the private sector into that fight, and
this afternoon I would like to share one idea for your
consideration.
The idea builds on a paradox that in all the countries that
are afflicted with systematic corruption, people in everyday
life in the private sector know how the systems work. After
all, they are the ones that are paying the bribes and being
extorted, so that common citizens know how corruption impedes
the social services they do and do not receive.
Lawyers understand how corruption afflicts the legal system
and its implementation. Business people understand very well
how corrupt systems of procurement and contracting work.
Accountants know very well how tricks are played in corporate
governance which become corrupt, evasion of taxation.
There is a paradox here, because on the one hand these
people know, but they cannot say. In many of these countries,
speaking up about the kinds of systems that exist to corrupt
their country is dangerous. It is a form of virtual suicide to
speak up. They know, but they cannot say. So the challenge, or
a challenge, in the next agenda, in the next step in this
process, will be to figure out how can we learn what they know
without putting them in a very sorry predicament?
So here is the idea I have for your consideration. Imagine
that with the lead of the U.S. Government and our private
sector, we picked out three areas where we know corruption
afflicts many of our friendly countries, let's say one in the
economic area such as procurement, one in the social area such
as pharmaceuticals, one in the justice area such as the legal
system in the courts, and we invite another set of countries to
participate with us in a diagnostic effort that builds on the
private sector's knowledge of how these corrupt systems work.
So what I have in mind is going to each country, taking out
15 or 20 individuals who are involved in the private sector
side in each of these three areas, and engaging in confidential
individual interviews with them that lead them through the
system to describe not individual people who are giving or
receiving bribes, but how the informal, possibly corrupt,
system works in practice. How are side payments made? How
extensive is the problem? How do the perpetrators of corruption
keep their actions and the results of those actions hidden from
public scrutiny? How does the corrupt system work?
With this diagnostic effort, improvements would then be
sought, again in cooperation with the private sector. On the
one hand, how can the formal systems be strengthened; on the
other hand, how can these corrupt informal systems be subverted
through actions ranging from public, private and nonprofit?
Let us suppose then with this effort reforms would follow,
helped by the American Government, helped by American business,
and then after some time, using the same methodology, we would
actually try to evaluate the success, going back once again to
business people, lawyers and accountants, and asking how are we
doing after a year, 2 years, 3 years.
Now, I would like to contrast this idea with the current
state of play in international aid for anticorruption efforts,
and I want you to imagine you are the President of country X.
Country X is a country that is receiving World Bank help or
USAID help, and you have received a loan or grant on the
condition that you clean up corruption in your country. Okay.
This puts you in a tough spot, because when you announce an
anticorruption effort, you are admitting that your government
is corrupt, and the opposition party says, of course, we knew
this all along. That is what we have been saying. And your
ministers and your civil servants are embarrassed at the
bashing that they take at your very hands.
So it puts you in a tough position, which is one reason why
many Presidents do not enjoy being given conditional loans on
the contingency of announcing that their governments are
corrupt and they are going to heed the tune of the World Bank
or the U.S. Government to clean it up.
In contrast, take the idea I mentioned to you. Imagine
again you are the President. You say, I am delighted to be part
of this international effort to study the way corrupt systems
afflict our world. I am so happy that the private sector in our
country and the citizens groups are taking part in this
diagnostic effort, because, after all, this is a problem that
affects all of us, and all of us must be part of the solution.
The international nature of the effort, the fact that the
private sector and the opposition parties would also be
involved in this effort gives you insulation as a President and
a chance to move forward with a more positive political face on
this issue.
Now, how might this work in practice? One final advantage
of this idea is it is fairly cheap. Imagine 150 to 200
interviews per country, some convening and collecting of
results both internally and internationally, the financing of
reforms, much of which should be done by countries themselves,
and then its follow-up surveys, again abetted by the private
sector. It is an idea that will not cost us as much as many
other ideas.
So practically, Mr. Chairman, how could this idea be
pursued? I suggest that you, this Committee, Members, develop
this idea and dialogue with USAID, with Transparency
International, with the Commerce Department, and then with
friendly nations who would be interested in participating. With
this collaboration, using technical expertise, design the
diagnostic, the interview instruments that would be used and
the procedures for gathering the data, organize the collection
of the data in each country, and then enable a system
diagnostic to be drawn of each of those three areas that we
would choose as the focal points. Share the results of the
diagnostic study with the governments of each of these
countries and work with them to develop transparent, openly
discussed remedies for the informal systems that we see that
are corrupt. Then implement the recommendations, follow it up a
year later, and use the very processes developed, the
participation of the private sector in this effort, to develop
further ideas for combatting corruption.
To conclude then, inviting the private sector means
learning what business people, accountants, lawyers and common
citizens know about the way corrupt systems work. The
particular version of the idea I have outlined here this
afternoon, in this particular version the United States would
take the lead in organizing an international collaborative
effort to analyze how corrupt systems work and how they might
be cleaned up. Notice that the idea goes beyond international
conventions, beyond codes of ethics, beyond foreign aid that is
aimed at civil service reform or more of the same in
government. Instead, it looks at inviting the private sector
into the fight against corruption.
Thank you.
Chairman Gilman. Thank you, Dean Klitgaard, for your very
interesting proposition.
[The prepared statement of Mr. Klitgaard is available in
the appendix.]
Chairman Gilman. Let me ask some questions.
Mr. Heimann, are there any pressures that our government,
as opposed to the World Bank or other international
institutions, can or should put on foreign companies to adopt
appropriate books and records and practices so that the supply
of bribes can be reduced?
Mr. Heimann. Thank you, Mr. Chairman. I will be very glad
to answer that question.
TI proposed to the World Bank several years ago that it
should encourage corporations to adopt antibribery compliance
policies. At the time the World Bank took the position that
only American companies had these policies, and it would be
inappropriate to apply this requirement because it would shrink
the pool of perspective bidders.
We think at this point we are at a stage where over 20
countries have ratified the OECD Convention. I think the time
has come to impose such a requirement not just on the part of
the World Bank, but on other international financial
institutions, and we hope very much your Committee would
encourage that, because I think I share Mr. Klitgaard's view,
you need the cooperation of the private sector. Criminal law
sanctions work only if the majority of companies comply
voluntarily. Then the law can bring the other 10 percent in
line. But a program of encouraging voluntary compliance is
essential to get the 90 percent aboard.
Chairman Gilman. What should the United States be doing
besides the International Bank?
Mr. Heimann. Well, what AID and other American agencies
already require. The important thing is to get the rest of the
world on board. But the U.S., through its role in the World
Bank, in the Inter-America Development Bank and other similar
institutions, can promote this. Similarly, OECD has a group
that works on bilateral aid programs. So I think there are a
number of vehicles available to the U.S. Government to push
this. I think if your Committee encourages it, the government,
the administration, would do this.
Chairman Gilman. Mr. Abeasi and Mr. de Michele, how have
developing countries responded to the adoption of the OECD
Convention? Have they welcomed the move to criminalize bribery,
or do they resent it as an intrusion in their internal affairs?
Mr. Abeasi. I think, for my part, it has been quite
acceptable to us, because as you indicated, it is a major cause
of benefit for Ghana, and therefore it is being welcomed,
especially by those that are getting into the democratic
dispensation.
I just want to take the opportunity to say that the steps
being advocated by Mr. Klitgaard has already been taken by a
few countries, including my country, for instance. We need to
create a demonstration effect that people that have done that
are going to get ahead. Botswana, for instance, is well-known
in the league for less corrupt nations, and I think we need to
create a few more of these.
I want to suggest that we are at a place where, with a
little effort, we can have another example which will be
showing that demonstration effect. But the OECD Convention
appears to be in the right direction.
Chairman Gilman. Mr. de Michele?
Mr. de Michele. Mr. Chairman, in my knowledge, there has
been no negative reaction to the adoption of the OECD
Convention. In fact, the adoption of the Inter-American
Convention, which took place 3 years in advance, shows that
basically these kind of conventions and rules are adoptable by
countries.
Now, the question still remains, how real will these
provisions become in each of these countries, and how far we
can move in terms of international cooperation.
Chairman Gilman. Thank you.
Dean Klitgaard, can your proposition be pilot-tested? You
have heard Dr. Abeasi say they already tested it.
Mr. Klitgaard. Yes, sir. It has been done in a few
countries, for example, with judges and prosecutors. We are
asking lawyers how the system actually works. Members of the
bar association enabled a description to be made of how that
system worked, and then you could close the loopholes and the
risks. In other countries it has been done in areas like road
building and pharmaceutical supply, where you can analyze the
steps along the process of procurement and contracting to
notice where the systematic vulnerabilities are to corruption.
What hasn't been done yet as a pilot basis is this kind of
international comparison with the systematic effort to build in
the private sector in the civil society as part of an
international effort. I think that is something that would
really add to the effectiveness of the effort.
Chairman Gilman. Dean Klitgaard, couldn't your proposal be
tested out at the Washington Conference on Corruption and see
if they would voluntarily agree to undertake this?
Mr. Klitgaard. Sure. We could try it out. You mean this
week?
Chairman Gilman. Yes.
Mr. Klitgaard. We could try it out.
Chairman Gilman. Try it out there and let us know how it
works out.
Mr. Gejdenson.
Mr. Gejdenson. Thank you, Mr. Chairman.
You know, I can't remember which Ottoman emperor, but it
seemed to me one of the Ottoman emperors said he was giving his
top staff access to his harems and treasuries. Others objected
to this, asking why he paid his people so well, and he said he
didn't want to lose his empire for a handful of rubies.
It seems to me one of the issues we have to take a look at
and I didn't hear discussed here is frankly, in some countries,
compensation is at such a level that you have to get a little
extra on the side. If you are asking somebody to be a customs
official, and you are paying him an official wage that by no
stretch of any imagination, even with his spouse or her spouse
working, even with a second job, is enough to survive on, then
the government is saying, you have got to steal.
Is there any review of what happens to critical employees
at choke points where you can cut off corruption by training
their salaries? Obviously many of these governments are in
trouble, but unless, it seems to me, that the people who work
for you are able to survive on the salary you pay them, you
know they are going to cheat.
Mr. Heimann. You have put your finger on one of the most
sensitive and most difficult areas to deal with. Like most
corruption issues, you have to develop local solutions to deal
with it.
In many, many countries, the civil service is too large,
and, as you say, underpaid. However, the effort to go from that
to a small number of people who are competent and well
compensated is a very, very difficult step. It has got to be
addressed.
Mr. Gejdenson. It is the critical step. As long as I am
making one-tenth of what it takes to survive, I am going to
find a way for my children to eat.
Mr. Heimann. From a TI standpoint, our first priority is to
deal with grand corruption, big payoffs to top officials. Until
you have dealt with that issue, until you have got the top of
the government interested in reform, you can't deal with low
pay in the rest of bureaucracy and facilitate it.
Mr. Gejdenson. I am not sure I agree with that premise.
Mr. Heimann. It has to be addressed.
Mr. Gejdenson. I also want to thank you. We used a lot of
your agency's work in drafting our legislation.
Mr. Heimann. Yes. We are very much aboard your effort, and
we want to continue working with you as it proceeds.
Mr. Gejdenson. Yes?
Mr. Klitgaard. I would like to take a crack at that
question also. In 1989, I wrote a paper in a journal called
World Development called Incentive Myopia. It pointed out that
the free market reforms around the world were praising the
value of incentives for farmers and fishermen and
industrialists, and getting the prices right was the mantra,
but we were not getting the prices right in the public sector,
where in many African countries the median wage of a public
servant could not feed a family of four, that we were inviting
corruption in the same way.
It is one thing to note the problem; it is another thing to
create a solution. The solution I proposed was to forget about
the solution through grand civil service reform and raising the
average level of pay of all workers in government. That is
financially impractical. Anyway, big civil service reforms
don't have a good track record. Instead, pick some key areas
where performance is measurable and try some experiments to see
if they work. For example, in public works such as road
building and ports, anything to do with power supply, you have
pretty clear measures that you can provide, reward the
laborers. This has been done in Ghana, in fact, back in the
days 15 years ago. They were very successful to pay people with
food-for-work money, additional bonuses for work successfully
done with results that followed.
Customs and tax bureaus in 1985 in Bolivia, they created a
scheme where if the public Customs officials hit a 60 percent
increase target that they themselves had specified, 5 percent
of the additional 60 percent would go to them as payoff. In
effect, they doubled Customs revenue in 1 year in Bolivia in
1985.
So you have to begin with schemes that have a measurable
outcome to show it works, and then try to spread to the more
difficult areas of government where it is very hard to measure.
This is where it is also very entrenched with corruption, such
as the courts and police. But I believe with an experimental
approach as opposed to a civil service reform approach that
this kind of problem can be addressed forthwith.
Mr. Abeasi. Mr. Gejdenson, if I may add to that, as he
said, we are attempting a Civil Service Performance Improvement
Program. The basis is we want to try to reduce the size of the
civil service and shift the excess toward alternate employment.
The problem is how do you generate the alternate employment?
Most people would want to get out of civil service that
does not pay properly so they can get into the private sector.
So the innovation is to develop jobs that people can do
themselves and empower them by giving them new skills. This is
the kind of operation that reform is trying to achieve, but it
is not easy. Again, you need to be able to do a study that
tells you the critical number of people you need in this
service. This is the step we are on.
Mr. de Michele. My office has just finished a diagnostic of
the Argentine public administration that has been made public
yesterday, specifically in procurement and human resources. I
believe it is one of the first diagnostics that was produced
via interviews and surveys on public officials themselves,
high-ranking, mid- and low-ranking. The study shows, one of the
findings, that even when you don't have the problem of low
salaries, you still do have the problem of incentives for
corruption. That is one of the findings. The other finding is
that you have to be very careful to put a lot of things under
the same word. Corruption is too large a word. You have to
divide, analyze and----
Mr. Gejdenson. Explain that. Explain what you mean by not
having the same title for all of it. Give me two different
categories from your perspective.
Mr. de Michele. You can have similar situations in two
agencies and a different outcome. It all depends on the process
that the agency runs. Customs, running Customs is not the same
as distributing syringes, not the same as contracting bridges.
Therefore, you can have some problems of low wages in those
three agencies, and in some of them you cannot have corruption.
This requires--and I think it has been said before--this
requires to develop tools that will allow for specific
diagnostics.
As far as I know, Mr. Klitgaard is perhaps the expert at
the table, that we have not been very successful developing
very specific tools. We are at the beginning of getting good
instruments for this. So everything that goes in that direction
is positive.
Mr. Gejdenson. Could I have the Chairman's indulgence for
one more question?
Mr. Heimann, we have been very sanctimonious here in the
United States, kind of sitting back here and growling about our
European compadres continuing to bribe at will.
What is your sense? One, are we missing some of our own ill
deeds here? Occasionally American companies do get caught
violating our own laws. Are we doing a good job enforcing
Americans laws? And are the Europeans genuinely ready to not
have the company deduct the bribe paid to the foreign official?
Is Europe really engaging us on this, are they ready to go
forward, do they see this as a serious challenge to democracy
and society, or are they saying Americans want us to deal with
it, we will make a little noise, but it is still not high on
our radar?
Mr. Heimann. We are making progress. We have got a long way
to go. Three or 4 years ago, TI could not get German companies
to pay any attention to its agenda, and it took really the
election where the Social Democrats took over to change the
climate. Now German companies are actively participating in
TI's work. We are making some progress in the U.K. France, the
progress is kind of slow. So you have to look at it country by
country.
I think one of the important changes in the last few years,
and I think TI has played a role in this, is to make this an
international issue and not just a U.S. issue. As long as we
had the Foreign Corrupt Practices Acts and we said, well, you
got to do what we do because we are clean and you are dirty,
that was not productive. Over the last several years, I think
it is being regarded as an international issue, and you are
getting increasing support around the world. While that is
progress, there is a lot more to do. But keeping it
internationalized and being tactful how we push this from the
U.S. standpoint is one of the key ingredients, and I think the
administration deserves credit in having done this very, very
well.
Mr. Gejdenson. Thank you.
Chairman Gilman. Dr. Cooksey.
Mr. Cooksey. Mr. Gejdenson, don't leave. I am going to
answer your question.
Mr. Gejdenson. Go ahead. I am listening.
Mr. Cooksey. Mr. Gejdenson is a good friend of mine. We
have fun throwing barbs occasionally.
I want to go on a little bit different line of questioning.
I see some very young, idealistic people, hopefully students,
in the back, and I want to bring up a rather disturbing dirty
subject. I want to talk about the corruption in this country. I
will give you some quick examples. The question I would like
each of you to answer is do we keep our level of corruption
down to the level that we should? If so, why? If so, do we do
it because we prosecute people occasionally, or do we still let
people get by? I am going to give you examples.
The first example is a report from the World Bank. It is
actually from the William Davidson Institute that I am sure you
are familiar with. But it shows that the U.K., Germany, Japan,
France and Russia, all give less kickbacks, bribery, for
foreign investment than the United States does. Austria is
worse than us, Belgium is worse than us, and Greece is off the
chart almost. That is the first example. That is an
international example.
Local domestic examples: An investigator with the premier
law enforcement agency in this country told me 2 years ago that
in a previous administration in this city, the District of
Columbia, there was a bribery kickback system going on in which
the municipality was sending city vehicles out, trucks,
backhoes, bulldozers, to residential and commercial
construction jobs in this city where we are today, and the
billing was done to another third-party entity. This
investigating agency put the whole case together, wrapped it
up, and there was never an indictment, never a prosecution.
I am going to tell you about my State of Louisiana. We have
a Governor who has been Governor for four terms, was recently
convicted on 17 counts along with his son and other people for
extortion or selling riverboat licenses. The Commissioner of
Elections is going to trial in the next 90 days for a similar
bribery kickback scheme.
There is in my town. I live in north Louisiana. I don't
live in New Orleans, I live in Monroe. We have a former city
official. So you see, Mr. Abeasi, we have this in this country,
too.
My question is--and I won't tell you what party they were
in----
Mr. Gejdenson. Tell us what State they are from, if the
gentleman would yield?
Mr. Cooksey. They are from my State.
Mr. Gejdenson. Thank you.
Mr. Cooksey. But they were all in your party. Okay.
How can we judge these other countries? And I agree, it
goes on there. I used to work in Kenya. I used to go over there
with truckloads of medical supplies when I was going over to do
eye surgery. I was adamant about following the rules, and I
went through all this, and one of my surgeons that went with me
would get his trucks through for $20. Finally I gave up. For
$20 I would get mine through in an hour. So, you know, it is
easier to do it that way.
My question to you is do you think we are really clean in
this country? If not, why do we prosecute some people, and why
do we not prosecute others, and what can we do to improve our
situation in this country?
Mr. Klitgaard. Are you a medical doctor?
Mr. Cooksey. Yes, I am an eye surgeon. That is where I used
to make an honest living, before I got this day job.
Mr. Klitgaard. Is there a lot of disease in the United
States?
Mr. Cooksey. Yes. There is more in Africa, where I used to
work.
Mr. Klitgaard. Should we therefore not get into the
business of curing disease in Africa, because there is disease
in the United States?
Mr. Cooksey. We do, but there seems to be a neglectful
attitude in this country.
Mr. Klitgaard. All right, but that is the same principle.
The principle would be something like this. There is corruption
everywhere in the world, just as there is sickness everywhere
in the world, and we start from that point of view. And then we
say, but the distribution of illness, different kinds of
illnesses, are differently intense in different parts of the
world. We have more heart disease than Africans do, we have
more colon cancer than Africans do, let's say. They have more
problems of hunger, malaria, diarrheal diseases and so forth.
Mr. Cooksey. Infectious diseases.
Mr. Klitgaard. So we don't say, you are sick, we are
healthy. We say, do we know anything that can help you fight
your diarrheal diseases, and the answer is yes, we do, and
therefore we go and try to help.
The same thing goes with corruption. I am often asked by
foreign journalists, are you saying, gringo, that you don't
have corruption in your country? And I say, first of all, no.
We have been historically the number one exporter of corruption
historically. I don't think we are anymore, but I think we
historically have been.
Mr. Cooksey. We are still high.
Mr. Klitgaard. And we lead the league in insider trading,
or we are close. We are doing very well in organized crime. At
least historically we have done pretty well in that area. Being
from Los Angeles, I can talk with pride about our police
corruption being right there at world standards. I am joking.
And, finally, I might say in this august body that in terms of
campaign financing, there are some who believe that the system
of campaign financing that we enjoy in this country, if not
corrupt, legalizes influences and practices that in other
countries would be thought to be inappropriate.
So we come from that point of view, yet nonetheless we can
say to them, do you think you are being held back by a judicial
system that is systematically corrupt? Ours is not, not
systematically. Do you think you are being hurt by banking and
credit systems that are undermined by favoritism, theft and
patronage? Ours are not systematically corrupt. Do you think
there is any way we can help each other to do better for mutual
benefit here? The answer is yes.
So I think the medical analogy is a very good one to help
us not be proud, not be self-righteous, but to look instead--
instead of saying, is there more heart disease in Argentina or
in the United States, say, I don't know, but let's get to work
on this patient.
Mr. Cooksey. A good response and a good answer.
Mr. Heimann?
Mr. Heimann. In my experience working in Transparency
International with people from many, many other countries, the
right way to proceed is very much the way Bob Klitgaard had it.
We have to admit we do not have a perfect system, but in most
of the areas we are looking at, we have tried and we have been
successful in many, many areas, and we have to learn things
from other countries, but other countries are willing to learn
from us. We have a much more transparent financial system. We
have an SEC. Most countries don't have a SEC. We have an Office
of Government Ethics that is being rapidly followed as an
example by many other countries. The Chinese sent people here
to learn about the U.S. Office of Government Ethics.
So, nobody is clean. The reason we can work with each other
is because we all have to admit none of us are clean. TI
conducted a Bribepayer's Index last year. We looked at not just
corrupt officials, but who does the bribe-paying. The U.S. came
out in the middle of the pack. We were 9th out of 19. This came
up to us as a real shock. We thought with the Foreign Corrupt
Practices Act 20 years in existence we would be way ahead of
the others. We were not. But that in turn----
Mr. Cooksey. Could you continue to answer the question?
Chairman Gilman. Without objection.
Mr. Heimann. I am sorry?
Mr. Cooksey. Go ahead.
Mr. Heimann. We are----
Mr. Cooksey. We are over my time limit, but I appreciate
your comments.
Mr. Heimann. So campaign finance is obviously a major area
where we have got to learn. But that is one area where I don't
think people can learn too much from us because of the first
amendment problem. I met with John Brademas the other day. The
1974 Campaign Finance Reform Act I think was a good move, but
the Supreme Court gutted it, and other countries don't have the
first amendment problem.
Mr. Gejdenson. If the gentleman would yield, I want to say
the Supreme Court has been wrong on other occasions, including
separate but equal and a few other decisions through the years,
so I think that a future Supreme Court will recognize that you
can limit dollars without limiting speech, and if free speech
and dollars are equal, then obviously poor people don't have an
equal voice in this democracy. So I think it is just a mistake
the Supreme Court made. I respect the Supreme Court, but I
assume that a future Supreme Court will recognize that you can
distinguish between the pile of money you have and the issue of
free speech.
Thank you, Dr. Cooksey.
Mr. Cooksey. Absolutely.
Mr. Abeasi, would you comment?
Mr. Abeasi. I would want to say it is not new to us. I am
not surprised. We know that corruption occurs here. Indeed,
when I was coming here for the last seminar, I stopped through
New York, and the immigration officer asked me, where are you
off to this time? I said, to Washington. He said, what for? I
said, I am going for the corruption conference. He said, that
is a good place to go, you know.
So we know that it happens here, but the important thing is
that if you came with a holier-than-thou attitude, then it
would be difficult to get us to take you serious. But we know
that the damage that it causes in the United States is such
that you might not even notice it, whereas if you took it to
the developing country level, the damage is so devastating that
we need to do something about it.
Mr. Cooksey. It is. It is very deep, and it is broad.
Mr. de Michele, would you like to comment?
Mr. de Michele. Very briefly, I think, first of all, it is
not my intention to comment on the situation in the United
States, but basically I would try to say that if you put the
idea of corruption along the idea that this is a personal or
individual problem, I think that is the wrong direction. If you
put the idea of corruption in terms of a systemic problem,
something that it can be viewed somehow empirically and
therefore improve the system, improve the quality of
government, then people don't get personally hurt by that, and
then you can move faster.
Mr. Cooksey. That is a good comment. Thank you, Mr.
Chairman.
I would like to thank my friend Mr. Delahunt. I was
probably imposing on his time.
Chairman Gilman. Mr. Delahunt.
Mr. Delahunt. I want to congratulate you on the work that
you have done, and I particularly think Transparency
International has earned and continues to enhance its
reputation all over the globe. But to pick up on the last point
by Mr.--how do you pronounce your last name?
Mr. de Michele. de Michele.
Mr. Delahunt. Thank you.
In talking about the systems and your experience with
corruption in various governments, it is just my own
observation that corruption appears to be more rampant, in
those nations where there is a weak judicial system. The
problem of corruption is far in excess as to what we see in
democratic societies, democratic nations, where the judicial
system is an independent and healthy institution.
It would seem to me that much of what we do here in
Congress, as well as any administration, we should revisit what
we do in terms of what we describe as nurturing democratic
institutions and funding efforts and specifically focus on
those judicial systems, because, again, thinking specifically
of Latin America, and wherever there is a serious problem with
corruption. Just recently we have had the President of Peru
make an announcement that he was going to call for new
elections and wouldn't be a candidate himself, and that was
based upon what presumably was a corrupt act that was
videotaped, by a high government official.
Invariably I believe it goes to more specifically a weak
judicial system and also a judicial system that has no
independence--or little independence--from the executive
branches of those nations. That is just an observation. I would
be interested if you have any comment.
Mr. Heimann. You are absolutely right. If the judicial
system is corrupt, other methods of dealing with corruption are
not going to be effectively enforced. The other side of the
issue, very few things are harder to reform from the outside
than judicial systems, and a lot of money has been spent to try
to inculcate the rule of law from outside. It simply has not
worked. This does not mean we have to stop trying, because you
are right, this is absolutely fundamental, and the way TI tries
to work on this is through the national chapters to develop a
local constituency interested in doing this.
Mr. Delahunt. I think you are very effective in that, by
the way. I think there is a relationship between improvements
that we do see and the efforts of your national chapters,
because I really think you bring that attention and that focus
and that spotlight to what has occurred. But I agree. I mean,
we have to persevere and persist in trying to find a mechanism
to effect the kind of change that I think we agree is critical.
Anyone else?
Thank you, Mr. Chairman.
Chairman Gilman. Thank you, Mr. Delahunt.
Mr. Gejdenson, do you have any further questions?
Mr. Gejdenson. Mr. Chairman, no. I just want to thank--if I
could for one moment, thank the panel. I think it is something
that we have to continue to work on. There are a lot of
preconceptions that occur both here and elsewhere. I remember
in 1972 I was in Spain with a young woman who was a college
graduate. At that time Franco had been head for some time of
the Spanish Government, and I was talking to her about
democracy, and she says, oh, we can't have democracy in Spain.
The Spanish people, we are just not suited to democratic
institutions. I just could not believe what I was hearing from
a young university person, well educated. You know what? The
Spanish people have been pretty good at having democracy in
Spain.
So I think a lot of these preconceived notions that there
are areas of the world--I think Mr. Cooksey's point is well
taken that the Democrats in Louisiana have been caught, the
Republicans haven't been caught yet, but certainly will be at
some point, that we have problems here as well, but we all have
to work at doing this better. We all have to work to make sure
that we build the institutions in every society that protect
the citizenry, whether from war or from thievery internally. We
can do that together, focusing on the challenges and putting
away our preconceived notions. Not that we are perfect, not
that anybody out there is perfect, we have to do the best we
can. There are lots of approaches.
I want to thank you, Mr. Chairman, for holding the hearing.
Chairman Gilman. Dr. Cooksey?
Mr. Cooksey. Incidentally, you have been wonderful
witnesses, and this has been a good discussion. It is something
we really need to address now. I was pleased with your very
thoughtful and good responses.
What do you think the comparative impact is of bribes from
external sources as opposed to those from internal sources in a
country? You know, let's say there is one country that they are
building airplanes, and they use bribes to get you to buy their
airplane, and yet that that same country, they have a lot of
internal bribery going on. What is the--what are the impacts of
that on that society, and what is the impact internationally?
The question again, what is the comparative impact of bribes
from external sources and those from internal sources? Internal
being within, Louisiana is bribing Louisiana, as opposed to
French bribing French, and then across country lines.
Mr. Abeasi. I believe that since the foreign exchange or
difference in currencies, naturally foreign bribery has a lot
more impact if you take the developing countries. Internal
bribery, circulation of the few CDs or nada, or whatever, in
there, but when it transfers across borders, then a little bit
of dollars transfers into a huge amount of local currency. So
the impact is really huge if it is foreign bribery. This is why
we need to more careful.
The only thing is that it is more difficult to detect
bribery across borders than within. Perhaps that is the only
difference. But otherwise the impact is heavier when it is from
outside.
Mr. Cooksey. Thank you.
Any other comments?
Chairman Gilman. Thank you, Dr. Cooksey.
Do any of the panelists want to make any closing statement?
Yes.
Mr. Heimann. I would just like to make one additional point
at this time. In your opening remarks, Mr. Chairman, you
referred to the Inter-American Convention as another important
issue. We couldn't agree more. It is a terribly important
initiative for the Americas. The one deficiency of that
Convention is that it did not have a monitoring process, and we
are convinced that you need a monitoring process to go from
good intentions to reality, and we hope you and the Committee
will help this effort along. Particularly there is a Summit of
the Americas next April in Canada, and we hope that the U.S.
will make this a top priority deliverable from that convention,
to make sure from the Summit of the Americas that they will
then agree to launch this kind of a process.
Thank you.
Chairman Gilman. Mr. de Michele, did you want to comment on
that?
Mr. de Michele. No.
Mr. Abeasi. Mr. Chairman, I just wanted to ask you, Mr.
Heimann, it is not just the monitoring system, but we need a
reward system that will, you know, highlight the fact that
people are making progress in fighting this battle so that it
will have a demonstration effect, especially in our part of the
world. Thank you.
Chairman Gilman. Dean Klitgaard?
Mr. Klitgaard. Nothing further.
Chairman Gilman. I want to thank our esteemed panelists and
our Members who took part today. This has been, I think, a very
helpful session. Please convey our best wishes to those
participating in tomorrow's summit on corruption. We hope out
of that summit will come some worthy recommendations. Thank you
again.
The Committee stands adjourned.
[Whereupon, at 4 p.m., the Committee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
Prepared Statement of Hon. Christopher H. Smith, a Representative in
Congress from the State of New Jersey
Mr. Chairman, I want to thank you for holding this very timely and
important hearing on the issue of combating corruption--clearly a
threat to global peace, stability and prosperity, but particularly
challenging for those nations struggling to develop democratic
institutions and the rule of law. The Helsinki Commission, which I
chair, has undertaken a series of hearings on this important topic,
examining the breadth and depth of the problem in the OSCE region and
what steps the OSCE can take as an institution to combat corruption and
organized crime.
Mr. Chairman, the cancer of corruption and organized crime
undermines public confidence in government and threatens the
development of the rule of law in those very countries which are
striving to shed the legacy of communism and its corrupt and repressive
system.
Widespread corruption in the transition countries threatens their
ability to provide strong and independent legal regimes, market-based
economies and social well-being for their citizens. Corruption has
stymied economic reforms in these countries and impeded efforts to
improve the status of disadvantaged groups. In the absence of effective
civil rule of law, Mafias have flourished through their corrupt
connections, gaining power over whole sectors of economies and
derailing legislative reform agendas inimical to their interest. A
recent EBRD report recognizes this reality and calls for greater
efforts among governments and international organizations to
``depoliticize'' economic activities and develop measures to constrain
state ``capture'' by private interests. As a result of this ``capture''
and siphoning off of public wealth, citizens, deprived in some cases of
government-sponsored basic support mechanisms, have formed negative
opinions about democracy and free markets.
As a concrete example--during a Commission hearing in March of this
year regarding the human rights situation in Turkmenistan, one of the
most authoritarian and repressive regimes in the region, opposition
leader Avdy Kuliev cited three components of President Niyazov's
internal politics, the first of which is corruption.
The fact that the Committee is holding this hearing and talking
about corruption--and not solely in the economic sense, but corruption
in government and public institutions--is itself refreshing. In the not
too distant past, many public officials were loath to mention the ``C''
word. Many corporations simply accepted the demand for bribes as a cost
of doing business.
In recent years, this attitude has begun to change and, frankly, I
believe the globalization of our economies is in part responsible.
There is a growing realization throughout the world that bribery is not
a harmless emollient to the deal. It is poisonous to emerging
democracies; poisonous to economic development; and poisonous to free
and fair trade. The business community has come to realize that, in the
long-term, competing on a level playing field with transparent rules of
the game is more beneficial to their bottom line, and they have
strongly supported our government's efforts through the OECD and other
organizations to develop and implement anti-corruption initiatives.
The Helsinki Commission has pushed for a greater recognition of the
threat of organized crime and corruption in the OSCE and has supported
efforts to develop an OSCE strategy to combat them. During the 1999
Annual Meeting of the OSCE Parliamentary Assembly in St. Petersburg,
Russia, our delegation called for the convening of a meeting of OSCE
Foreign Ministers to develop strategies to combat these threats. We
also introduced a resolution condemning the cross-border trafficking in
women and children--a major industry, along with drugs and weapons, for
organized crime entities. This year, we were successful in having the
OSCE Parliamentary Assembly adopt as the focus of its work during its
Ninth Annual Session in Bucharest, Romania, the topic of Promoting
Transparency in Government and the Rule of Law.
Our Commission worked closely with the State Department to ensure
that combating organized crime and corruption was on the agenda of our
heads of state during the OSCE Summit in Istanbul in November of last
year. As a result, the OSCE leaders issued their ``Charter for European
Security'' in which they specifically recognized that corruption poses
a great threat to the OSCE's shared values, generates instability and
reaches into many aspects of the security, economic and human
dimensions. The OSCE Heads of State committed themselves to step up
efforts across all dimensions of the OSCE to combat corruption and to
promote the rule of law. They directed the OSCE Permanent Council--the
Organization's primary working body--to examine how best to contribute
to efforts combating corruption and to report to the meeting of OSCE
Foreign Ministers scheduled to convene in Vienna, Austria on November
27-28, 2000.
Members of our Commission, and our colleagues in the House and
Senate, will continue our efforts to develop strategies within the OSCE
process to combat corruption and promote transparency and the rule of
law. Mr. Chairman, I look forward to the testimony of our distinguished
panel of witnesses and any recommendations they may have as to how we
can continue to address these issues here in the Congress and working
with the OSCE. Thank you.
__________
Prepared Statement of Fritz Heimann, Chairman, Transparency
International USA
I want to compliment the Chairman and the Committee for calling
this hearing. Your title--``The Fight Against Corruption: The
Unfinished Agenda''--is most pertinent. Over the last half dozen years
a start has been made in addressing international corruption. However,
much more needs to be done.
I represent Transparency International (TI), an NGO formed in 1993
to combat corruption around the world. TI's headquarters are in Berlin,
Germany, and we now have a network of national chapters in over 75
countries. I am one of the founding members of TI, serve on TI's board
of directors, and am Chairman of its US chapter, TI-USA. I am also
Counselor to the General Counsel of General Electric.
TI's first objective, placing corruption high on the international
agenda has been largely accomplished. There is now widespread
recognition of the damage done by corruption: undermining democratic
institutions, distorting market economies, and crippling international
development programs. This recognition is a big step forward from the
time when corruption was a taboo subject, and was treated by the
international community with a mixture of apathy, cynicism and denial.
The major challenge now is to prove that tangible progress can be
made to reduce corruption. There still is much skepticism whether
reforms will work. The current prominence of the issue gives us a
window of opportunity. However, that window will close unless we can
show successful results in the next three to five years. This requires
realistic priorities. The US Government, as well as TI, must be
selective in focusing resources on programs, countries and institutions
where success can be achieved in the next few years.
I will first discuss the OECD Convention on Combating Bribery of
Foreign Public Officials. That is the most promising initiative so far
and has the best chance of achieving tangible results. Second, I will
discuss the outlook for other international conventions and suggest
some priorities. Finally, I will briefly comment on some other
initiatives.
i. oecd convention: current status and next steps
International conventions deserve priority attention because, in a
global economy, bribery has taken on international dimensions, and
multilateral programs are needed to combat it. The OECD Convention to
Combat Bribery of Foreign Public Officials was signed in December 1997.
Because the signatories are the home countries of most major
international companies, the OECD Convention is the ideal tool for
controlling the supply side of international corruption. Currently 24
of the 34 signatories have ratified, including nine of the ten largest
exporters. This means that the necessary critical mass is aboard. We
must now make sure that the signatories effectively implement and
enforce the Convention.
Monitoring Process: Phase 1. A key element of the OECD Convention
is its process for follow-up monitoring. The first phase of the
monitoring process, a review of national implementing laws, began in
the Spring of 1999. The laws of 21 countries have now been reviewed. TI
and its national chapters have actively participated in the monitoring
process, submitting our own evaluations to the OECD. For example, TI
disagreed with the position of the UK government that new legislation
was unnecessary. We pointed out that existing UK laws did not provide
an effective basis for prosecuting foreign bribery.
In June 2000 the OECD Working Group reported to the OECD
Ministerial on Phase 1 of the monitoring process. The most telling sign
that the monitoring process is off to a good start is that both the UK
and Japan were flunked. Not many international institutions have the
courage to criticize their largest members! As a result, the UK has
agreed to introduce new legislation this fall. The Japanese government
has also indicated that it plans to introduce corrective legislation.
During the next twelve months we need to make sure that
deficiencies in implementing laws are corrected and that the ten
remaining signatories ratify the Convention. That includes Argentina,
Brazil, Chile and the Netherlands. Considerable additional work is
needed to assure that the Convention will achieve its objectives and
that the behavior of companies in international trade will really
change. Four issues deserve the attention of your Committee.
First: Making Phase 2 of the Monitoring Process Work
Early in 2001 the OECD is scheduled to begin Phase 2 of the
monitoring process: assessing the effectiveness of national enforcement
programs. That will be the reality check to determine whether the
Convention is working. OECD teams will be sent to six countries each
year to conduct on-site reviews.
To assure that Phase 2 will be effective, TI has made two
recommendations to the OECD. First, more adequate staff and budget
support must be provided. Evaluating enforcement programs is a much
more difficult task than examining the adequacy of implementing laws
under Phase 1. Sufficient OECD staff support is not yet assured.
Second, the monitoring process must be made more transparent.
Public hearings should be held during each OECD country visit. Experts
from civil society and the private sector should be allowed to present
their views and respond to questions from the monitoring team. Making
the monitoring process more transparent remains a controversial issue
at the OECD. Many countries prefer to conduct reviews behind closed
doors. For them, proposals for non-governmental participation raise the
specter of Seattle-type confrontations. In TI's view, a more open
process will improve public acceptance and reduce the risk of
confrontations.
Second: Prohibiting Bribery of Political Party Officials
The OECD Convention currently prohibits bribery of foreign public
officials, but does not cover bribery of foreign political party
officials. TI is concerned that this leaves a dangerous loophole, which
will be increasingly exploited now that bribery of foreign public
officials is prohibited. While the US has pressed for coverage of
political bribery, very few other OECD countries were prepared to
tackle this controversial subject.
TI believes that the recent scandals involving Chancellor Kohl and
his party demonstrate that the time has come to close this loophole. To
that end, TI is organizing a high-level international group to develop
recommendations for submission to the OECD. The group will meet in mid-
October in Italy. The meeting will be co-chaired by John Brademas, a
distinguished former member of this House, and by Peter Eigen, TI's
Chairman.
Third: Strengthening Accounting, Auditing and Corporate Controls
In April TI presented to the OECD a detailed survey of current
practices and requirements relating to (a) books and records, (b)
auditing practices and (c) internal corporate controls in sixteen OECD
countries, including the ten largest exporters. The survey was
conducted by a task force from the Big Five international accounting
firms.
The TI Study disclosed that most of the sixteen countries do not
have legal requirements for internal control systems. Many countries do
not apply books and records requirements, for example, barring secret
slush funds, to all companies engaged in international business or to
foreign subsidiaries. The survey also revealed shortcomings in
requirements for outside audits and for financial disclosures.
Prohibitions against foreign bribery cannot be effectively enforced
unless there are adequate requirements for financial accountability and
transparency. TI has recommended that the deficiencies identified by
the Task Force be dealt with during the OECD monitoring process.
Fourth: Publicizing the Convention
Last Fall TI published a survey of businessmen and other experts in
international trade, conducted by Gallup International in 19 leading
emerging markets. It showed that very few of the respondents had heard
of the OECD Convention. Respondents from major international companies
were just as ignorant as those from local companies.
TI recommends that major educational efforts be launched to make
clear to businessmen both in OECD countries and in key foreign markets
that bribing foreign officials is now a crime. Businessmen will not pay
attention to laws of which they are not aware. Another important
audience should be procurement officials and prosecutors in countries
where bribes are paid.
The OECD should be encouraged to publicize the Convention, and the
State Department could also play a role. A prosecution for foreign
bribery would undoubtedly provide the best learning experience.
OECD Outreach Program
Before turning to other issues, I want to comment on the OECD
Outreach program. The Convention has been signed by five countries that
are not OECD members, including Argentina, Brazil and Chile, and there
is an outreach program to obtain additional signatories. Accession by
countries that play an important role in international trade, such as
China and Malaysia, would be helpful. However, much broader expansion
could be counterproductive.
The OECD operates by consensus, and it took years of work before
sufficient cohesion was developed to make progress on difficult issues.
In particular, the effective functioning of peer group reviews, on
which the monitoring process depends, requires reasonable compatibility
of economic interests and of legal systems. Large-scale expansion,
including countries with incompatible interests, could disrupt the
present constructive atmosphere.
ii. other conventions
The OECD is the best forum for controlling the supply side of
bribery because it includes the home countries of most major
international companies. However, unless the demand side is also
addressed, pressure to pay bribes will continue, and ways to meet such
demands are likely to be found.
The demand side is more difficult to tackle because it is not as
concentrated as the supply side. Every country that imports goods and
services, or accepts foreign investment, must deal with the demand side
of international bribery. While all countries have laws prohibiting
their officials from demanding bribes, in many countries such laws are
not enforced, or only sporadically enforced. The TI Corruption
Perceptions Index for 2000, released last week, shows how widespread
corruption is around the world.
International conventions are important on the demand side because
they create a set of consistent norms to guide reform efforts, and
provide a lever for civil society and the private sector to encourage
governments to take more effective steps to prevent their officials
from soliciting bribes. In addition, providing for mutual legal
assistance through conventions will facilitate investigations and
prosecutions.
Efforts to promote international conventions are underway in a
number of forums.
A. Regional Forums
Inter-American Convention Against Corruption
The Inter-American Convention has been ratified by 20 countries,
including the US. It is broader in scope than the OECD Convention,
covering both supply and demand sides. However, its provisions are less
specific, and there is no provision for follow-up monitoring.
In our view, follow-up monitoring is essential to transform the
Convention's good intentions into practical effect. The Organization of
American States (OAS) provides an institutional base for a monitoring
program. However, the use of strong peer pressure, as displayed by the
OECD, goes beyond the customary practices of OAS. During the past year
there has been increasing recognition in the Americas that a monitoring
program is needed. This has been actively encouraged by TI's national
chapters.
The OAS is currently considering what kind of monitoring process
would be most suitable, and should make its recommendation before the
end of this year. The US delegation to the April 2001 Summit of the
Americas in Quebec should make it a high priority to secure a decision
by the leaders at the Summit to launch the monitoring process. We urge
your Committee to support such action. Six OAS members, including
Argentina, Brazil, Chile and Mexico have signed the OECD Convention,
and are committed to participation in the OECD monitoring process. That
provides a useful precedent for similar action under the Inter-American
Convention.
An OAS monitoring process would require adequate resources. The
Inter-American Development Bank should be asked to help provide
funding.
Council of Europe Conventions
The Council of Europe is working on three conventions to curb
corruption. One covers criminal law, one covers civil law, and one
establishes a monitoring program. The membership of the COE includes
the fifteen countries of the European Union as well as countries from
Central and Eastern Europe. The US has observer status.
The COE program should be encouraged by the US. In particular, the
convention establishing the monitoring program, referred to as GRECO,
could become a potentially promising vehicle for strengthening the
institutional capability of legal systems in Central and Eastern
Europe. Whether this promise can be realized will depend on whether
sufficient resources will be provided by the wealthier countries from
the European Union, and on whether there is enough political will to
make difficult changes in Central and Eastern Europe.
Prospects for Other Regional and Global Conventions
There have been proposals for regional conventions for Africa and
Asia, as well as for a global convention under UN, or possibly WTO,
auspices. There is not enough time for me to discuss these initiatives.
I only want to refer back to my earlier comment about the need to
concentrate on programs that have a realistic prospect for achieving
tangible results in the next few years. Additional conventions dealing
with corruption are unlikely to be productive unless (a) the
participants have reasonably compatible legal systems and economic
interests, and (b) there is an institutional base for follow-up
monitoring.
iii. other initiatives
TI and the International Chamber of Commerce have promoted the
adoption of corporate compliance programs by the private sector. Such
programs are an essential complement to international conventions and
national legislation against corruption. Criminal enforcement can deal
with a small percentage of violators, if the majority of companies
comply voluntarily. Laws remain ineffective if the majority fails to
comply.
TI believes that the World Bank and other international financing
institutions can promote more rapid acceptance of corporate compliance
programs by making the adoption of such programs a precondition for
participation in project that they finance. When we previously proposed
such a requirement, it was argued that this would limit the pool of
eligible bidders because few non-US companies had adopted anti-bribery
compliance programs. Such arguments are no longer appropriate now that
the OECD Convention has made foreign bribery a crime in 24 major
exporting states. Here again, support from your Committee would be very
helpful
Before concluding I want to express TI's appreciation for the role
that the US Government has played in the fight against international
corruption. Without strong US leadership such initiatives at the OECD
and OAS Conventions would not have gotten underway. Many people at the
Departments of State, Commerce, Justice and Treasury have been actively
involved. We also appreciate the strong support provided by the
Congress.
The fight against corruption now has broad international support.
TI is proud of its role in developing such support. We are convinced
that continued US commitment is essential to move from an encouraging
start to the next phase, achieving of tangible results. Thank you for
your interest and support.
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Prepared Statement of Robert Klitgaard, Dean, Rand Graduate School
Thank you for inviting me to testify on efforts to fight global
corruption. I am Robert Klitgaard, Dean and Ford Distinguished
Professor of International Development and Security, the RAND Graduate
School in Santa Monica, California. The Graduate School is part of
RAND, a nonprofit institution that helps improve policy and
decisionmaking through research and analysis. The opinions and
conclusions expressed in this testimony are mine and should not be
interpreted as representing those of RAND or any of the agencies or
others sponsoring my research.
One part of the unfinished agenda in the international fight
against corruption is how to invite in the private sector.
After all, corruption does not just involve government. Business
people and lawyers and citizens pay the bribes, even as they condemn
bribery. They should be invited to become part of the solution. But
how?
The first point to note is that business people and citizens know
where corruption exists and how corrupt systems work. Citizens
understand how bribery shapes the services they receive or don't
receive. Accountants know the illicit games played with audits and
taxes. Lawyers understand corrupt legal practices. Business people know
all about corrupt systems of procurement and contracting.
But there is a second point: they know, but they can't say, at
least not publicly. In many countries, if an individual stands up to
denounce a corrupt system, he or she will be attacked by it.
So, the trick is how to learn what people know about corruption
without asking them to commit suicide.
Please consider this idea. With the leadership of the American
government and our private sector, other countries are invited to join
in an international effort. Together we pick three areas that are
particularly prone to corruption, such as procurement, pharmaceuticals,
and the police.
In each country, people in the private sector are asked in
confidential interviews how corrupt systems work, but not about
specific individuals. The results of many such interviews becomes a
diagnostic of each area. What is the informal process, how extensive is
the corruption, how does it work, how do its perpetrators avoid
detection or prosecution?
Using the diagnostic, improvements are sought. How can formal
systems be strengthened? How can corrupt systems be subverted? Answers
are developed through cooperation between government and the private
sector.
Reforms follow. And then, after some time, the same sorts of
confidential interviews leading to diagnostics are used to monitor
progress.
political benefits
This idea is politically attractive, especially compared with the
usual anti-corruption strategies, which many countries find offensive.
Imagine you are the president of country X. Suppose you are told
that as a condition for foreign aid you must clean up corruption in
your government. This may put you in a tough spot. If you agree to the
demands, the opposition may say, ``Yes, we told you so and now they
admit it'this administration is corrupt.'' Your cabinet members and
your civil servants may wonder why you are bashing them.
Now contrast your reaction to the idea proposed here, an
international effort that invites in the private sector. You are
pleased that all sectors and all countries are combining to battle this
universal problem, the cancer of international corruption. You point
out that the diagnostic studies are being carried out in many
countries, including the United States, and that these studies address
the international dimensions of bribery as well. You are glad that the
private sector and citizens in general are recognizing that this
problem involves all of us, that all of us must be part of the
solution. And so forth--I think we all can begin to write the speech.
There is a final advantage to the idea: it is relatively
inexpensive. We are talking about a total of perhaps 100 to 150
confidential interviews per country, some culling and sharing both
nationally and internationally, appropriate remedial measures, and
follow-up.
what needs to be done?
How might this idea be pursued?
1. LDevelop the idea in dialogue with USAID, the Commerce
Department, business organizations, and organizations such as
Transparency International.
2. LShare the concept with other countries for further refinement.
3. LWith these collaborators, design the diagnostic study of the
three or four sectors per country.
4. LOrganize the collection of data in each country.
Confidentiality of individuals surveyed is important, so it may be
advisable to involve non-nationals in the administration of the survey.
5. LShare the results of the diagnostic study with the private
sector, citizens' groups, and government officials. Redraft it and come
up with joint recommendations (for both the private sector and
government, of both national and international scope).
6. LShare the results and recommendations in an international
meeting.
7. LImplement the recommendations, perhaps with international
cooperation.
8. LFollow up progress a year later and thereafter.
9. LLeverage the partnerships developed through this process to
take further steps in the fight against corruption.
conclusion
To conclude, ``inviting in the private sector'' means learning what
business people, professionals, and citizens know about problems and
solutions but are unable publicly to proclaim.
In the particular idea I've outlined here, the United States would
take the lead in a set of international, private-sector-based studies
of how corrupt systems work and how they might be cleaned up. The idea
goes beyond international conventions and codes of conduct. It goes
beyond foreign aid directed at capacity building or ``more of the
same.'' Inviting the private sector should be part of the new agenda in
international cooperation against corruption.
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