The Global Corruption

7
The 6|oba||taI|on oI 0orrupI|on

PATR|K LYNN, STEPPEN J. KDBR|N, AND HD|SS NA|H
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|usincss cxccutitcs, |cu cn(crccmcnt c((iccrs, cnd ctncr cxpcrts tc cddrcss ccrrupticn issucs. Ictric|
G|nn is cn cdtiscr tc tnct grcup. Stcpncn j. Kc|rin is Wi||icm H. Wurstcr Irc(csscr c( Mu|ti-
ncticnc| Mcncgcmcnt ct tnc Wncrtcn Scncc|, Unitcrsit c( Icnns|tcnic. Mciss |clm is
cditcr-in-cnic( c( Ioreign Iolicy.
ver lhe pasl four years, corruplion has been lransformed from a pre-
dominanlly nalional or regional preoccupalion lo an issue of global revolu-
lionary force. In less lhan a half-decade, lhe vorldvide backlash againsl
corruplion has svepl like a fireslorm across lhe global polilical land-
scape. Covernmenls have fallen. Longlime ruling parlies have been hounded
from office. Iresidenls, prime minislers, parliamenlarians, and once mighly
corporale chieflains have been grilled by proseculors and herded onlo
lhe dockel. Ilaly, Irance, }apan, Soulh Korea, India, Mexico, Colombia,
razil, Soulh Africa: no region, and hardly any counlry, has been im-
mune.
Il is a revolulion lhal even Karl Marx could scarcely have predicled-
a simullaneous, lhough largely peaceful, public revoll on five conlinenls
againsl one of lhe vorlds oldesl parl-lime professions: proffering and
accepling bribes.
Campaigns againsl corruplion are, of course, hardly nev. ul lhis
decade is lhe firsl lo vilness lhe emergence of corruplion as a lruly
global polilical issue eliciling a global polilical response. Since 1992 a
half-dozen or more inlernalional organizalions-governmenlal and non-
governmenlal-have energelically laken up lhe queslion. The Uniled
Institute for International Economics | http://www.iie.com
8 COPPUPTlON AND THE CLOBAL ECONOMY
Nalions, lhe rganizalion of American Slales (AS), lhe Inlernalional
Chamber of Commerce, lhe recenlly formed Transparency Inlernalional,
lhe World Lconomic Iorum, Inlerpol, and-in vhal may be lhe mosl
promising inilialive of all, lhe rganizalion for Lconomic Cooperalion
and Developmenl (LCD)-are all making efforls lo lackle lhe problem.
No one imagines lhal ve are aboul lo vanquish corruplion, vhich is
deeply enlrenched across lhe globe and shovs dangerous signs of spread-
ing. In many counlries, nev leaders have ridden lo office on anlicorrup-
lion plalforms, only lo be exposed in lurn as lhoroughly corrupl lhem-
selves. Nonelheless, lhere is reason lo believe ve may be al a hislorical
lurning poinl in humanilys long vreslle vilh corruplion. A nev global
slandard appears lo be laking shape in human consciousness, vilh
polenlially ma|or ramificalions for our inslilulions as vell as our polili-
cal and business lives. The 1990s, ve vould predicl, are unlikely lo pass
vilhoul lhe achievemenl of significanl legal and inslilulional anlicorrup-
lion reforms.
Whal has been lhe source of lhis sudden corruplion eruplion (Naim
1995)` Why is lhis issue increasingly seen as a global ralher lhan a local
or nalional problem by so many` Whal inlernalional reform efforls are
nov under vay` Are lhey likely lo succeed, and if so vhy and hov`
We vill allempl here lo offer provisional ansvers lo lhese queslions.
Why Corruption Erupted
The corruplion eruplion has several causes. There have been bolh real
and perceived increases in corrupl aclivily in various counlries. In some
regions, syslemic polilical change has veakened or deslroyed social,
polilical, and legal inslilulions, opening lhe vay lo nev abuses. Llse-
vhere, polilical and economic liberalizalion has simply exposed corrup-
lion lhal vas once hidden. ul almosl everyvhere, ve observe a marked
decrease in lhe villingness of lhe public lo lolerale corrupl praclices by
lheir polilical leaders and economic eliles.
k Leg|I|maI|on 0r|s|s
In lhe largesl sense, lodays anlicorruplion revolulion can be vieved as
a conlinualion of lhe ongoing legilimalion crisis lhal has become lhe
leilmolif of global polilics during lhe final quarler of lhe cenlury. Irom lhe
mosl advanced democracies lo lhe mosl repressive slales, lhe balance of
pover belveen leaders and publics has been shifling and conlinues lo
shifl in favor of open, democralic governance. The primary driving forces
behind lhis change are groving affluence and educalion and lhe emer-
gence of lhe Informalion Age. The increasing vorldvide availabilily and
THE CLOBALlZATlON OF COPPUPTlON 9
consumplion of informalion, lhe burgeoning influence of lhe media, and
lechnological changes lhal give knovledge and informalion primacy in
economic life have all conlribuled lo an informalion-rich environmenl in
vhich leaders, villy-nilly, are forced lo give a fuller public accounling of
lhemselves lhan ever before.
Secrecy and rvellian manipulalion of lhe lrulh-lhose cornerslones
of aulhorilarian and lolalilarian rule-have become increasingly difficull
lo mainlain in lhe ever more lransparenl poslinduslrial environmenl.
Lmpovered by informalion, people almosl everyvhere are expressing
lheir revulsion al lhe lradilional sub rosa aclivilies of enlrenched and
corrupl eliles, laking lheir dissalisfaclion lo lhe slreels and, vhere pos-
sible, lhe polls.
The Walergale scandal in mid-1970s America-in vhich a nevly em-
povered media exposed and broughl dovn a slrong presidenl-lhe peaceful
democralic revolulions lhal loppled diclalors across Lalin America in
lhe 1980s, Mikhail Corbachevs faleful decision lo revilalize lhe sclerolic
Soviel economy and polilical cullure vilh a ma|or infusion of openness
or g|csncst, and lhe subsequenl peaceful popular uprisings in Laslern
Lurope lhal precipilaled lhe fall of lhe erlin Wall and lhe collapse of
lhe Soviel Union have all been manifeslalions of lhis global democraliz-
ing lrend. The presenl-day global backlash againsl corruplion is, in a
sense, only lhe lalesl chapler in lhis conlemporary saga.
The end of lhe Cold War has clearly acceleraled lhe process. This
has been parlicularly obvious in Ilaly-lhe birlhplace of lhe 1990s anli-
corruplion revoll-vhere fear of communism had long undervrillen public
lolerance of noloriously high levels of corruplion. eginning in 1992, a
colerie of Milanese magislrales discovered lhal vilh lhe demise of lhe
Soviel Union and lhe eliminalion of lhe communisl lhreal il vas pos-
sible lo bring dovn many of lhe erslvhile polilical unlouchables on
corruplion charges. In Soulh Korea as vell, lhe end of lhe Cold War
opened lhe floodgales of public anger al lhe anlidemocralic and corrupl
praclices of lhe polilicians and lhe large conglomerales, or cncc|c|. As
6usincss Wcc|s }ohn Rossanl has vrillen, In every counlry on lhe former
fronl of lhe cold var-Soulh Korea, Taivan, Mexico, Ilaly, and even
}apan-holding lhe line againsl communism vas more imporlanl lhan
insliluling real free markels and polilical compelilion. Nov, shocks are
beginning lo rock lhe Lslablishmenls of lhe induslrialized nalions (Dirly
Money, 6usincss Wcc|, 18 December 1995).
ur Lnemy LeII s
The end of lhe Cold War and lhe emergence of a lruly inlegraled inler-
nalional economy have also conlribuled lo lhe videspread perceplion
of corruplion as a problem vilh inherenlly global ramificalions. Wilh
lhe vorld no longer divided inlo lvo greal camps, our sense of global
inlerdependence has increased. There is groving avareness lhal secu-
rily and slabilily depend nol simply on air forces, armies, and nalional
arsenals bul also on a hosl of inleracling economic and polilical faclors.
The securily of one nalion can be radically affecled by purely domeslic
developmenls in a seemingly dislanl slale. There is an indissoluble link,
for example, belveen official corruplion in Lalin America and drug-
inspired crime on American cily slreels. Dispules over alleged corrup-
lion can even drive a vedge belveen allies-as in lhe recenl scandal
over American economic espionage in Irance (CIA Confirms lunders
During Lconomic Spying in Irance, |cu Ycr| 1imcs, 13 March 1996).
Iolenlial links belveen corruplion and polilical inslabilily are parlicu-
larly obvious in lhe case of Laslern Lurope and lhe former Soviel Union.
In lhe shorl run, removal of aulhorilarian conlrols, decenlralizalion, pri-
valizalion, and opening of lhese economies lo inlernalional parlicipalion
have vaslly expanded possibililies for corruplion, in some places, such
as Russia, il is rampanl.
Corruplion in lhese emerging markels is doubly pernicious. Iirsl, il
compromises lhe efficacy and efficiency of economic aclivily, making lhe
lransilion lo free markel democracy more difficull. Second, and equally
imporlanl, corruplion dislorls public perceplions of hov-and hov vell-
a proper markel economy vorks. Under such circumslances il becomes
all loo easy for economically beleaguered publics lo confuse democraliza-
lion vilh lhe corruplion and criminalizalion of lhe economy-crealing
ferlile soil for an aulhorilarian backlash and engendering polenlially hos-
lile inlernalional behavior by lhese slales in lurn. If il conlribules lo
derailing democralic reform and provoking an aulhorilarian backlash,
corruplion in Russia could ullimalely engender a ma|or securily lhreal for
America and lhe Wesl.
Nor, as ve have seen, are lhe polilical ill effecls of corruplion re-
slricled lo emerging markels. ne of lhe unexpecled consequences of
lhe end of lhe Cold War has been videspread malaise and an inlensi-
fied crisis of legilimacy in advanced induslrial socielies-aggravaled by
lhe public perceplion of enlrenched official misconducl. To quole Irench
polilical scienlisl Dominique Mois, ur enemy lefl us before ve vere
ready (remarks al lhe Wharlon Schools Inlernalional Iorum, ruges,
elgium, }une 1994). As a resull, governmenls in many LCD counlries
are experiencing difficullies or are even floundering. Ilaly, }apan, Creal
rilain, and lhe Uniled Slales come easily lo mind.
The end of lhe Cold War has affecled lhe developing counlries as vell.
The longevily of regimes such as lhose of Marcos in lhe Ihilippines, lhe
Duvaliers in Haili, Slroessner in Iaraguay, and lhose of lhe many African
lyranls vho oppressed lheir cilizens and looled lheir cenlral banks vas
a concrele geopolilical expression of superpover rivalries. Ioreign aid and
mililary assislance conlinued lo flov lo lhese counlries even lhough il
vas videly knovn lhal much of lhe lime lhe lilular deslinalion vas no
more lhan a slopover en roule lo lhe privale Sviss bank accounls of lhe
ruling families and lheir cronies. Novadays-vhen aid budgels every-
vhere have been slashed, vhen lhe communisl lhreal is a fading memory,
and vhen public opinion in donor counlries is beller informed of abuses
lhal lake place anyvhere on lhe globe-corrupl regimes can no longer
rely on loyally lo lhe cause as an aulomalic guaranlee of supporl.
Side by side vilh lhese shifls in lhe inlernalional climale have come
domeslic pressures for reform arising from lhe grovlh of democracy
ilself. In 1996 lhe human righls organizalion Ireedom House classified
117 slales as free and democralic-fully 61 percenl of lhe vorlds coun-
lries, up from |usl 42 percenl 10 years before (Karalnycky 1996). Croving
democralizalion has meanl lhe emergence of more aclive nalional media
and slronger legislalures vilh lhe pover lo hold leaders accounlable.
To be sure, lhere is no simple correlalion belveen levels of democracy
and levels of corruplion (see }ohnslon, chapler 3). Democracy beslovs
no aulomalic immunizalion againsl public malfeasance, as lhe counlless
recenl scandals in induslrial and developing democralic counlries shov.
Nonelheless, il is probably fair lo argue lhal democralic regimes, over lhe
long run, engender more poverful anlibodies againsl corruplion lhan
syslems in vhich polilical liberlies are slifled. A regime lhal has frequenl
eleclions, polilical compelilion, aclive and vell-organized opposilion forces,
an independenl legislalure and |udiciary, free media, and liberly of ex-
pression is bound lo generale more limils on lhe scope and frequency of
corruplion lhan one lhal does nol have lhem. The recenl succession of
cleanups in lhe bell of Soulh American counlries lhal venl democralic in
lhe 1980s bears vilness lo lhis basic lrend.
Slill, in counlries undergoing a lransilion from aulhorilarian rule lo
democracy and a markel economy, lhe consequences of corruplion can
be complex-as lhe aforemenlioned problems in many poslcommunisl
slales evidence. Inilially, democracy may mean only lhal corruplion is
decenlralized, bribes lhal vere once paid al lhe federal level are nov
paid lo slale and local aulhorilies.
Moreover, lhe sudden deregulalion of enlire nev arenas of economic
aclivily lhal vere once under lhe exclusive conlrol of lhe slale can vaslly
expand room for misconducl, opening lhe door lo fraud and all sorls
of abuses by firms lrying lo lake advanlage of lhe opporlunilies crealed
by capilalism. Covernmenl officials in charge of privalizing publicly ovned
assels can become inslanl lycoons by selling lhem al lov prices for a
bribe or even by acquiring lhem lhrough lheir families and friends. In-
deed, lhe opporlunilies for renl-seeking and renl-laking behavior by public
officials during such a lransilion can be manifold.
enI 8eek|ng versus VoIe 8eek|ng
Rales for nevly privalized ulililies-phones, eleclricily, and lhe like-
can be sold very lucralively. These opporlunilies peak in lhe early slages
of lhe lransilion lo a markel economy, vhen monopolislic companies
are oflen privalized vilhoul an effeclive regulalory framevork in place
or lhe banking syslem is liberalized vilhoul adequale supervision by
monelary aulhorilies. During lhis period, lhe coexislence of free-price
and free-markel seclors, vilh seclors in vhich cenlral planning slill reigns,
creales ma|or dislorlions and many opporlunilies for grafl and abuse.
In lhe long run, hovever, a more compelilive, less regulaled economy
is bound lo offer less scope for corruplion lhan a cenlrally planned one,
if only by reducing opporlunilies for official renl seeking and by shifl-
ing lhe balance of pover belveen lhe privale and public seclors, usu-
ally vilh lhe effecl of increased official accounlabilily (see Klilgaard 1988
for discussion of lhis issue).
GIobaIization of the ProbIem
If polilical inlerdependence is parlicularly marked loday, economic inler-
dependence is even more so. Indeed, lhe globalizalion of lhe economy
is adding nev urgency lo lhe corruplion problem. Three relaled and
dramalic changes are al vork.
ho|es |n Ihe |ke
Iirsl, broadening and deepening of global economic inlegralion increases
lhe probabilily lhal lhe effecls of corruplion vill spill over and resonale
lhroughoul lhe vorld economy. When lhe corrupl ank of Credil and
Commerce Inlernalional venl belly-up in 1991, for example, lhe enlire
social securily fund of Cabon vas viped oul (Iassas 1994). The increas-
ing permeabilily of nalional borders limils lhe reach of nalional lerrilo-
rial |urisdiclion and makes il impossible lo vall off nalional economies
or policies, lo separale lhe domeslic from lhe inlernalional.
Second, lhe emergence of an eleclronically nelvorked inlernalional fi-
nancial syslem markedly enhances opporlunilies for corruplion, lhe difficully
of conlrolling il, and lhe polenlial damage il can inflicl. Iaradoxically-
vhen ve consider lhe presenl-day abilily of inlelligence and olher agencies
lo monilor such eleclronic lraffic-il also may offer nev opporlunilies
for ils exposure and conlrol.
Third, lhere has been a dramalic increase in lhe number of coopera-
live slralegic alliances, bolh vilhin counlries and across borders. In many
slralegic seclors, lhe emerging global economy resembles a complex
vorldvide nelvork of inlerfirm agreemenls. The relalional nalure
of alliances makes conlrol much more difficull for bolh managers and
public policymakers. Iurlhermore, alliances or nelvorks depend on
mulual lrusl lo a much grealer exlenl lhan lhe lradilional, hierarchical
firm. Such lrusl can be compromised direclly by corruplion. Clobalizalion
affecls bolh lhe problem and ils solulion: lhe nev global realilies facili-
lale corruplion, as vell as serve in olher vays lo expose and inhibil il.
In lhe folloving seclions ve explore bolh sides of lhis coin.
kIoms and 8|Is
y lhe early 1990s, some 37,000 lransnalional corporalions vilh vorld-
vide sales of aboul $5.5 lrillion conlrolled roughly one-lhird of lhe
enlire vorlds produclive assels. Inlerfirm lrade belveen subunils of lhese
corporalions nov accounls for belveen 30 and 40 percenl of all vorld
lrade. Today lhe value of sales of lransnalional subsidiaries is far grealer
lhan lhal of vorld exporls (UNCTAD 1994, 131).
Al lhe same lime, in Nicholas Negroponles vords (1995), lrade in
aloms is being replaced by lrade in bils. Today lhe mosl valuable
producl in inlernalional commerce is informalion lransmilled eleclroni-
cally. Il has become increasingly difficull lo separale manufacluring from
services and goods from informalion, in facl, in 1995, lcrtunc decided lo
combine ils induslrial and service 500s inlo a single lisling.
Many counlries lhal lolerale corrupl praclices-lo lhe exlenl, for
example, of alloving corporale lax deduclions for overseas bribes-do
so under lhe assumplion lhal lhe illicil aclivily in queslion vill lake
place somevhere else. Hovever, in an inlegraled inlernalional economy,
lhere is no somevhere else. The valls around nalional markels are crum-
bling, lhe separalion belveen inlernalional and domeslic economics
and polilics is vanishing rapidly. The very concepl of nalional producls,
nalional firms, and even nalional markels is losing meaning.
olh corruplion and slandards of conducl are globally conlagious lo-
day. Wilh an increasing porlion of lhe vorld economy in lhe hands of
global firms, il is unreasonable lo expecl lhal corporale praclices, cul-
lure, and elhics vill nol inlerpenelrale all markels. If il vorks abroad,
vhy nol lry il al home`
As a groving number of experls are beginning lo recognize, vide-
spread corruplion lhrealens lhe very basis of an open, mullilaleral vorld
economy. Mullilaleralism depends on lrusl and a belief lhal olhers vill
play by lhe rules. The lendency lo cheal, lo free-ride, is a conslanl lhreal
lo lhe inlernalional economic syslem. Tolerance of corruplion lills lhe
playing field-againsl firms (and counlries) lhal vill nol or cannol en-
gage in bribes and olher corrupl praclices. Corruplion dislorls compeli-
lion and may reduce gains from free flovs of lrade and inveslmenl.
Thal is equally lrue of counlries lhal lolerale corruplion domeslically
and lhose lhal lolerale-or even lacilly encourage-corrupl aclivilies by
lheir firms abroad.
M||||ons by Mouse 0||ck
In no seclor of lhe vorld economy have bils replaced aloms lo lhe exlenl
lhal lhey have in inlernalional finance. Today lhe inlernalional financial
syslem comprises hundreds of lhousands of compuler screens linked by
salelliles in inslanlaneous communicalion vilh one anolher, lhey are in
closer conlacl lhan lhe slalls in a village markel. The volume floving
lhrough lhis nelvork is almosl incomprehensible-vell over $1 lrillion a
day in foreign exchange lransaclions alone. In lhe vasl ma|orily of in-
slances, lhe only physical acl needed lo lransfer funds is a lap on a
keyboard or lhe click of a mouse. Money circulales around lhe globe
lilerally al lhe speed of lighl. nce funds enler lhe syslem lhey can be
disbursed in an inslanl lo any number of far-flung localions. As 1imc
magazine has pul il, lav-enforcemenl officials loday are forced lo search
for dirly funds afloal on lhe oceans of legilimale paymenls-a daunling
lask al besl (A Torrenl of Dirly Dollars, 1imc, 18 December 1989).
The globalizalion and digilizalion of inlernalional finance mean lhal
il is lechnically easier lhan ever before lo dispose of lhe fruils of corrup-
lion, regardless of lhe size of lhe paymenl. Consequenlly, corruplion
and criminal aclivily such as lhe drug lrade increasingly pose a direcl
lhreal lo lhe inlegrily of lhe inlernalional financial syslem ilself. Il is
more and more difficull loday lo drav a clear line belveen legal and
illegal funds, lo separale bribes and drug money from less criminal bul
slill dubious corporale and individual lransaclions designed, for example,
lo minimize a lax burden. Such an inlegraled and digilized inlernalional
financial syslem only parlly under lhe conlrol of nalional aulhorilies by
nalure increases lhe occasions of sin-and ils polenlial consequences.
Developmenls |usl over lhe horizon lhrealen lo exacerbale lhe prob-
lem. Any number of firms are nov vorking hard lo develop eleclronic
cash, L-money, vhich can be used in lhe groving number of commercial
lransaclions on lhe Inlernel. L-money, in vhalever form, vill combine lhe
allribules of cash-universal acceplance and a lack of a clear audil lrail-
vilh lhe ease of eleclronic lransfer (Iosl 1995). Irom a regulalory sland-
poinl, lhe one advanlage of cash is lhal il is cumbersome lo lransporl in
large quanlilies and possible lo spol as il enlers lhe syslem. L-money vill
be inslanlly lransporlable al lhe louch of a compuler key and very diffi-
cull lo lrack and regulale. Il could conceivably make buying a govern-
menl official |usl one more lransaclion on lhe Nel.
k Two-Way 8IreeI
Yel if lhe nev global realilies in some vays facililale corruplion, in olher
vays lhey inhibil il. The globalizalion of eleclronic communicalions makes
il easier lo lransfer money across borders and lo launder funds of dubious
origin. ul il has also given rise lo lhe mosl unreslrained media in hislory.
Covernmenl officials are finding il is far from easy lo limil lhe spread of
damning informalion in lhe age of CNN, lhe Inlernel, lhe fax-modem,
and easily affordable desklop publishing. The global explosion of commu-
nicalion and informalion nol only makes secrecy harder lo mainlain lhan
ever before, il also forces governmenls lo be more responsive lo an
influenlial global audience (inveslors, |ournalisls, polilicians, mullilaleral
bodies, and inlernalional public opinion in general) lhal adds lo lhe
conslrainls under vhich lhey have lo operale. The risks for governmenl
officials, and perhaps even more for corporale execulives, of seeing lheir
names blackened by corruplion charges on a global scale are higher lhan
ever. Iresumably, such heighlened risks can have a delerrenl effecl.
Such forces are limiling lhe freedom lhal governmenl officials once
had lo pursue lheir privale inleresls al lhe expense of lhe public veal.
Ierhaps as imporlanl, lhey are also lovering lhe lolerance governmenls
have for harboring corrupl individuals or praclices.
ver lhe pasl decade, for example, lhe Sviss governmenl, spurred by
pressure from olher nalions, has made ma|or progress in loosening
ils once-slricl bank secrecy lavs. nce alleged lo harbor millions in ill-
gollen funds, Sviss banks are no longer lhe banks of choice for money
launderers (Andelman 1994). In Cuba, lhe Caslro regime decided il could
no longer afford lo prolecl Roberl Vesco, lhe fugilive US financier vho
had lived on lhe island for decades. The Samper adminislralion in Colom-
bia also delermined il could nol afford lhe sanclions lhal lhe Uniled Slales
vas going lo impose if il did nol clamp dovn on lhe drug kingpins of lhe
Cali carlel-unlil lhe Colombian presidenl vas himself accused of solic-
iling millions in campaign conlribulions from drug criminals.
A GIobaI Breakthrough?
The final engine of change in lhe currenl global environmenl is lhe
emergence of several concrele, coordinaled inlernalional efforls al anli-
corruplion reform. ver lhe pasl half-decade, a remarkable number of
governmenlal and nongovernmenlal inlernalional bodies have acled or
called for aclion on corruplion.
hew InIernaI|ona| In|I|aI|ves
Larliesl efforls vere aimed nol so much al corruplion per se as al
lhe relaled problem of drug money. In 1988, nearly 100 governmenls
approved lhe UN Convenlion Againsl Trafficking in Illicil Narcolics
and Dangerous Drugs, commilling lhemselves lo criminalizing money
laundering and lifling lhe secrecy barriers lo ils deleclion. Al lhe Iaris
economic summil lhe folloving year, lhe induslrial nalions formed lhe
Iinancial Aclion Task Iorce, an ad hoc organizalion of 26 slales, lo carry
oul lhe mission. Since lhen, lhe lask force has endorsed 40 recommended
counlermeasures, and member counlries have agreed lo allov lechnical
leams from olher member governmenls lo monilor lheir efforls. The
Luropean Union, a regional member of lhe lask force, has developed ils
ovn anli-money-laundering slandards based on lhe lask force recom-
mendalions (US Deparlmenl of Slale 1992).
Wilh lhe advenl of lhe corruplion eruplion in lhe 1990s, lhe inlerna-
lional anlicorruplion agenda greally broadened and acceleraled. In No-
vember 1994, lhe Uniled Nalions sponsored a high-profile conference in
Naples on cross-border and organized crime. ne hundred lhirly-eighl
nalions signed lhe Naples Declaralion, pledging slepped-up domeslic
aclion and inlernalional cooperalion lo fighl organized crime (138 Coun-
lries Seek lo Combal Clobal Crime, Lcs Angc|cs 1imcs, 24 November
1994). (Thal conference hosl Ilalian Irime Minisler Silvio erlusconi vas
himself declared al lhe lime lo be under invesligalion by magislrales on
corruplion charges underlines lhe need for a cerlain skeplicism concern-
ing such inlernalional declaralions.)
In 1995, lhe World Lconomic Iorum-lhe largesl inlernalional organi-
zalion of chief execulives-also called for cooperalive aclion by govern-
menl and business lo fighl corruplion. They eslablished lhe Davos Croup,
an informal associalion of high-level inlernalional business execulives,
lav-enforcemenl officials, and experls-including Inlerpol Secrelary Ceneral
Raymond Kendall and Siemens AC Chairman Hermann Iranz-lo sludy
lhe problem (Corruplion Coes Clobal, and So Has lo e lhe Riposle,
Intcrncticnc| Hcrc|d 1ri|unc, 29 March 1995).
The mosl significanl and promising efforl is an allempl lo come lo grips
vilh a long-slanding, cenlral, and unlil recenlly seemingly inlraclable
problem-bribery in inlernalional business lransaclions. Wilh lhe excep-
lion of lhe Uniled Slales-vhich criminalized lhe praclice nearly 20 years
ago-mullinalional firms in induslrial counlries roulinely proffer bribes lo
officials in developing nalions as a means of landing business deals. Many
developed slales nol only legally permil such bribery bul also permil
firms lo deducl such bribes as a legilimale business expense (LCD
1995b). This is nol only a videspread and pernicious inslance of corrup-
lion bul also a praclice by vhich lhe induslrial nalions, in effecl, encour-
age and conlribule lo corruplion in lhe developing vorld. In 1993, a
group of former World ank execulives eslablished an organizalion called
Transparency Inlernalional, loosely modeled on lhe concepl of Amnesly
Inlernalional and dedicaled lo fighling corruplion and promoling in-
creased lransparency in business and financial lransaclions vorldvide
(Cameron 1996). Remarkably aclive and effeclive in lhe fev years since ils
eslablishmenl, Transparency Inlernalional has given high visibilily lo lhe
overseas bribery problem.
The mosl imporlanl reform, hovever, came in 1994 vhen al US prodding
lhe LCD Council approved an official recommendalion calling upon
member slales lo lake effeclive measures lo deler, prevenl, and combal
lhe bribery of foreign public officials in conneclion vilh inlernalional
business lransaclions (Yannaca-Small 1995). The firsl such formal polili-
cal commilmenl by lhe induslrial counlries, lhe LCD inilialive, if suc-
cessfully carried oul, could effecl a revolulionary change in inlernalional
business praclices. (A small bul inleresling developmenl came in 1996
vhen lhe Iaris-based Inlernalional Chamber of Commerce, parlly spurred
by lhe LCD recommendalion, promulgaled lhe firsl amendmenls in
nearly 20 years lo ils rules and slandards for inlernalional business, call-
ing for efforls lo combal bribery |usiness, Iolice Chiefs Urge Anli-
Corruplion Drive, Reulers, 9 Iebruary 1996, Inlernalional Chamber of
Commerce 1996]).
ecause il seems a lurning poinl in lhe anlicorruplion ballle, il is vorlh
examining lhe evenls lhal led lo adoplion of lhe LCD recommendalion
and assessing ils prospecls for success (see also Iielh, chapler 6).
The Lone|y 8oy 8couI
The deepesl hislorical rools of lhe LCD recommendalion go back more
lhan lvo decades lo lhe American Walergale scandal of lhe early 1970s,
vhen congressional hearings exposed a series of corrupl praclices by
American mullinalionals, including illegal paymenls lo lhe Nixon cam-
paign (laundered lhrough foreign banks) and direcl bribes by American
companies lo foreign public officials. In lhe mosl infamous such bribery
case, exposure of Lockheed Corporalions $25 million in illicil paymenls
lo }apanese officials (lo secure sale of ils Trislar L-1011 aircrafl) resulled
in lhe resignalion and criminal conviclion of }apanese Irime Minisler
Kakuei Tanaka. Spurred by lhe reform spiril of lhe posl-Walergale era, in
1977 lhe US Congress passed lhe Ioreign Corrupl Iraclices Acl (ICIA).
As amended in 1988, lhe acl has lvo primary provisions: lhe firsl criminal-
izes cerlain paymenls lo governmenl officials abroad, and lhe second
requires accurale accounling of all lransaclions and eslablishmenl of a
syslem of inlernal conlrols vilh periodic audiling (Iilman and Sanford
1994).
The anlibribery provisions of lhe acl are delailed and exlensive: lhey
prohibil American individuals or corporalions from paying, offering lo
pay, or promising lo pay foreign governmenl officials lo influence any
official acl, induce officials lo acl or fail lo acl in violalion of lheir lavful
duly, or induce officials lo use lheir influence vilh lhe governmenl lo
oblain business. The ICIA (as amended in 1988) makes American man-
agers liable for proseculion, fines, and possible imprisonmenl if il can be
proved lhey are avare of an illegal acl or shov conscious disregard or
deliberale ignorance of a likely violalion.
The ICIA provides for lhree exceplions. The mosl imporlanl is for
facililaling or expediling paymenls lo lover-level officials (oflen called
grease paymenls) lo secure lhe performance of rouline governmenl
aclions. Lxceplions are also made if lhe paymenl is legal under lhe
vrillen lavs and regulalions of lhe hosl counlry or if lhe paymenl is a
bona fide expendilure, for example, for lravel and lodging relaling lo a
producl demonslralion or conlraclual performance. The laller provision
obviously opens somelhing of a loophole: one US official, for example,
vas quoled as expressing surprise al Disneylands groving imporlance
as an inlernalional lraining sile. (See Klubes and Iraola 1995 and }advin
and Shilling 1994 for a complele reviev of lhe provisions of lhe ICIA
and ils amendmenls.)
Slill, vhalever ils imperfeclions, lhe ICIA has placed unique reslric-
lions on lhe foreign operalions of American firms. No olher induslrial
counlry has promulgaled or enforced remolely comparable regulalions.
Nol surprisingly, over lhe pasl lvo decades-parlicularly as overseas
business has accounled for an increasing share of American corporale
revenues-lhe ICIA has remained a sore poinl and issue of conlro-
versy vilh many in lhe American business communily. The complainl
has regularly resurfaced lhal Americas efforl lo play lhe lonely boy
scoul placed US companies al a serious disadvanlage compared vilh
foreign compelilors (Kimelman 1994).
Has lhe ICIA hurl American business abroad` n balance, evidence
suggesls lhal American firms have paid a price for legally enforced virlue
-lhough lhe exlenl of losses remains unclear. A 1996 Commerce Deparl-
menl reporl eslimaled (vilh lhe assislance of US inlelligence agencies)
lhal American firms losl $11 billion vorlh of business over lhe previous
lvo years lo compelilors vho paid bribes (Trade Iromolion Coordinaling
Commillee 1996, 113, see also chapler 10 for furlher analysis of lhis
eslimale). Unforlunalely, lhe underlying analysis remains classified.
Syslemalic sludies in lhe open lileralure, meanvhile, are fev and far
belveen. A 1981 Ceneral Accounling ffice sludy of 250 firms indicaled
lhal fever lhan 1 percenl reporled serious losses as a resull of ICIA.
Almosl one-lhird reporled a negalive effecl of lhe ICIA on lheir inler-
nalional business, hovever, and more lhan 60 percenl fell il affecled lhe
abilily of American firms lo compele abroad (Iilman and Sanford 1994,
Sheffel 1995). Tvo olher sludies conducled in lhe lale 1980s found negalive,
if somevhal veak effecls, of lhe ICIA on exporls. eck, Maher, and
Tschoegl (1991) found lhal lhe ICIA negalively affecled US exporls lo
non-Lalin American, bribery-prone counlries. Using a mail survey of 336
exporlers, Irasad (1993) found lhal 30 percenl reporled lhal lhe ICIA
had lillle or no effecl on lheir business, vhile 14 percenl noled a very
large decrease in lheir business. Aboul half of lhe respondenls fell lhal
lheir exporl business vas dovn somevhal or moderalely as a resull
of lhe acl.
Allhough a number of American execulives have complained aboul
lhe ICIA, lhere have also been business voices on lhe olher side of lhe
issue. Ior example, former Texaco CL }ames W. Kinnear has argued
lhal lhe ICIA aclually benefils US companies by preemplively insulal-
ing firms from lhe cosls and elhical complexilies involved in bribing
(Kinnear 1995). }ack Welch, CL of Ceneral Lleclric, is also on record as
saying US companies can vin vilhoul bribes. Welch argues lhal a
firm musl be lhe lov-cosl supplier, bul in almosl all cases, if you have
lhe qualily, price and lechnology, you can vin-nobody can sleazeball
you (Tichy and Sherman 1993, 133). Ceneral Lleclric has produced vhal
US officials regard, according lo a Slale Deparlmenl official inlervieved
by one of lhe aulhors, as a model-company elhics code, designed lo
insulale lhe firm complelely from ICIA violalions.
Allhough compliance has nol been perfecl, lhe burden of evidence
suggesls lhal mosl US firms do comply vilh lhe ICIA-lhough recenlly
reporled federal invesligalions of IM and oeing under lhe ICIA
suggesl lhal lhe slrains of inlernalional compelilion may be shoving.
IM recenlly fired lhe lop execulives of ils Argenline subsidiary afler
Argenline officials alleged il paid $6 million in bribes. oeings Canadian
subsidiary, meanvhile, is said lo have paid a bribe of $1 million lo a
ahamian official in a deal lo sell airplanes in lhal counlry (Alleged
Iayoffs Risk ig Ienallies for IM, Wcsningtcn Icst, 7 March 1996, IM
Iires Three Argenline Lxeculives Amid Invesligalion of ank Conlracl,
Wc|| Strcct jcurnc| |eleclronic edilion], 15 Seplember 1995). olh invesli-
galions are ongoing.
Whalever lheir various vievs of lhe ICIA, execulives of American
mullinalionals have been all bul unanimous in lheir vish for a level
playing field, repealedly urging lhe US governmenl lo lake aclions lo
inlernalionalize ICIA prohibilions or lo persuade olher nalions lo adopl
similar lavs.
Congress reflecled lhe desideralum of lhe American corporale com-
munily vhen il amended lhe ICIA in 1988. The relevanl language,
allached lo lhe mnibus Trade and Compeliliveness Acl, chiefly aimed
al clarifying ambiguilies in lhe original 1977 lav. ul lhe amendmenls
also include a sense of Congress expression urging lhe execulive branch
lo negoliale prohibilions on bribery vilhin lhe LCD-lhe aclual legis-
lalive genesis of lhe lalks leading lo lhe 1994 recommendalion (Sheffel
1995). Yel, vhile dulifully complying vilh lhe congressional mandale
and laking up lhe issue in LCD councils, lhe lhen-presiding ush
adminislralion pul lillle energy inlo lhe anlibribery lalks.
Fr|vaIe ebaIes, Fub||c |p|omacy
Tvo faclors vere crilical in producing lhe slrongly vorded LCD rec-
ommendalion on inlernalional bribery in 1994: a nev, high-level US
governmenl decision lo press for serious LCD aclion on bribery and a
climale of public anlicorruplion feeling in Lurope lhal made il increas-
ingly difficull for Luropean governmenls lo oppose lhe US inilialive
publicly.
A ma|or shifl in American policy on lhe bribery queslion came afler
lhe lrade-minded Clinlon adminislralion assumed office in 1993. De-
parling from lheir predecessors back-burner approach, Secrelary of Slale
Warren Chrislopher and Assislanl Secrelary of Slale for Lconomic and
usiness Affairs Daniel K. Tarullo decided lo make lhe LCD bribery
negolialion a Slale Deparlmenl priorily. According lo a Slale Deparl-
menl official, vho described lhe US role in lhe LCD negolialions in an
inlerviev vilh one of lhe aulhors on condilion of anonymily, lhe lvo
vere experienced corporale lavyers by lraining, vilh a knovledge of
ICIA issues. olh reflecled lhe long-dominanl vish in lhe American
business communily for a level playing field. (Slale Deparlmenl officials
also argue lhal lhe American molivalion is nol exclusively economic self-
inleresl: lhey poinl lo lhe adverse effecls of corruplion on economic
and democralic developmenl in lhe developing vorld.)
Irediclably, Cermany, Irance, and rilain al firsl slrongly opposed lhe
US efforl behind lhe scenes-lhough lhe rilish have since become more
supporlive of lhe American posilion. In LCD councils in 1993, lhe
Luropeans raised several ob|eclions lo lhe US approach. They argued lhal
primary responsibilily for policing bribery lay vilh lhe (moslly develop-
ing) nalions vhose officials roulinely accepled bribes, nol vilh lhe
Weslern companies lhal mighl proffer lhem. They characlerized lhe ICIA
as an illegilimale exercise in exlralerrilorialily, seeking lo exlend US lav
beyond US borders. They also accused lhe Uniled Slales of seeking lo
enforce a uniform inlernalional criminal code lhroughoul lhe LCD, in
violalion of olher members sovereignly. In addilion, Cermany argued
againsl mixing laxalion vilh moralily-a refleclion of ils peculiar laxalion
philosophy (box 1).
US officials counlered lhal lhe ICIA vas a legilimale domeslic lav lhal
relied on Congresss explicil pover under lhe Conslilulions inlerslale
commerce clause: companies became criminally liable under lhe lav by
virlue of using eilher lhe US mails or lhe American lelephone syslem
(bolh regulaled as inlerslale commerce) lo arrange a bribe-one reason
lhal ICIA cases can be difficull lo prosecule and prove. They argued lhal
vhal lhe Uniled Slales soughl vas nol a uniform criminal code bul a
uniform resull: LCD members vould be free lo legislale againsl bribery
in a manner lhal conformed vilh lheir separale conslilulions and legal
cullures, all America desired vas lhal such bribery be proscribed.
Yel lhe key lo US success in lhe negolialions lay vilh lhe argumenls
made nol al lhe conference lable bul in lhe headlines. Throughoul lhe
negolialions, lhe American adminislralion made frequenl and calculaled
use of public diplomacy lo press ils case, according lo one US official
involved. Wilh scores of Irench polilicians under invesligalion and vilh
corruplion exploding as a high-profile issue in Cermany and across
Lurope and Asia, American officials look lheir case lo lhe inlernalional
media, vhich proved remarkably receplive. (Slories on corruplion in lhe
inlernalional media have burgeoned. A Nexis search shovs lhe number
of arlicles menlioning lhe vord corruplion in lhe Lccncmist and lhe
lincncic| 1imcs-vhich averaged 229 per year over 1982-87 and 502 per
year over 1988-92-rose lo 1,076 in 1993, 1,099 in 1994, and 1,246 in
1995.)
Whenever lhe issue venl public, lhe Americans could counl on hold-
ing lhe high ground. The embarrassmenl faclor |in lhese negolialions]
is very high, lhe official poinled oul. Meanvhile, behind lhe scenes
Slale Deparlmenl officials collaboraled vilh Transparency Inlernalional,
vhich helped make a parallel public case for LCD reforms.
Nonelheless, oulside observers vere generally surprised by lhe slrenglh
of lhe final language of lhe recommendalion approved by LCD min-
islers al lheir May 1994 minislerial. The slorm of scandal engulfing
Lurope al lhe lime vas doublless lhe crilical faclor. In lhe climale of lhe
corruplion eruplion, Luropean foreign minislers and governmenls could
simply nol afford lo go on record as favoring bribery in any form.
Lven more surprising, hovever, has been lhe pace of aclivily since
lhe recommendalions adoplion. The firsl follov-on lask mandaled by
lhe LCD afler May 1994 vas a reviev of domeslic legislalion relaling
lo lhe issue of lax deduclibilily of bribes. The LCDs Working Croup
on ribery, under lhe chairmanship of Sviss official Mark Iielh, duly
embarked on lhe legislalive reviev. A breaklhrough came in 1995, vhen
lhe rilish unearlhed a long-forgollen 1906 Irevenlion of Corruplion
Acl, vhich prohibiled such bribery in lerms closely paralleling lhe 1977
American slalule. The discovery of lhis anliqualed lav, albeil long ig-
nored and unenforced, refuled lhe Luropean argumenl lhal lhe ICIA
had been a unique and unprecedenled American exercise in exlraler-
rilorialily. Il also calalyzed a shifl in lhe rilish slance on lhe issue
lovard lhe American posilion.
Coincidenlally, lhe lax deduclibilily issue arose al a regular meeling
of lhe LCDs Commillee on Iiscal Affairs-an experl group compris-
ing moslly economisls and lax specialisls. Ior some reason, according lo
an American official, lhe LCD lax experls bonded on lhe issue of lax
deduclibilily of bribes-arriving al a poverful consensus on ils economic
disulilily. The facl lhal LCD lax experls vere nov on record as oppos-
ing lax deduclibilily of bribes gave nev impelus lo Iielhs efforls. Allied
vilh lhe Iiscal Affairs Commillee, Iielhs LCD ribery Working Croup
during 1995 developed lough nev recommendalions on lax deduclibil-
ily lhal vere adopled al lhe LCDs annual minislerial in May 1996
(LCD 1995b and 1996, Meeling of Council al Minislerial Level, LCD
press release, 21-22 May 1996).
cx 1 Frcm WaIergaIe Ic Oe|gaIe: Germany's sIrugg|e
w|Ib ccrruI|cn
Since Congresss passage oI the Foreign Corrupt Practices Act in 1977,
European and Asian states have been by and |arge content to regard the
US |aw as yet another pecu|iar expression oI Americas Puritanism and
penchant Ior internationa| mora|izing. lndustria| countries continued to per-
mit their Iirms to bribe abroad and deduct such bribes on tax returns; not
on|y were European and other governments happy to reap the competitive
windIa|| Irom Americas |one|y boy scout posture, but anecdota| evidence
suggests that some European embassies a|so even Iaci|itated such bribery
in Ioreign capita|s.
The 1990s have brought an important transIormation in the po|itica|
|andscape, however, and such attitudes appear to be changing. The case
oI Cermany i||ustrates the trend. Cermany is one oI a number oI nations
that not on|y permit overseas bribery but a|so a||ow companies to deduct
such bribes Irom their tax returns. ln Iact, unti| |ast year domestic bribery
in the private sector was deductib|e under Cerman tax |awso |ong as the
recipient oI the i||icit transaction was named. (The provision app|ied to
bribery oI businesspeop|e; bribing pub|ic oIIicia|s remains a serious crime.)
Furthermore, crimina| sanctions Ior such bribery have been quite |enient
and cooperation between tax and crimina| authorities minima|.
Cermany has embraced a phi|osophy oI taxation proIound|y diIIerent
Irom that oI the United States. Cermans have traditiona||y prided them-
se|ves on a wor|d|y, pragmatic, even cynica| attitude toward the Iinancia|
Ia||out Irom mora||y stigmatized activities. Cerman oIIicia|s have insisted,
with perhaps an a|most admirab|e Iisca| rea|ism, that issues oI mora|ity
and taxation shou|d be kept entire|y discrete. For examp|e, Cerman prosti-
tutes operating |ega||y in many cities dutiIu||y pay taxes on their income,
in the same Iashion as shop c|erks or posta| workers, and are required to
do so by |aw (see, Ior examp|e, "lnterview mit K|aus OIIerhaus }Prsident
des BundesIinanzhoIsJ," 3ddcutschc Zcitung, 28 August 1995).
The re|uctance to use the tax code to enIorce mora|ity has gone hand
in hand, however, with a certain nationa| mora| se|I-conIidence. Cermans
have tended to view their society as inherent|y we||-ordered. Traditiona||y,
Cermans have taken pride in the se|I-image oI their country as one oI
Europes and the wor|ds |east corrupt states.
Yet over the past two years this nationa| mora| se|I-conIidence has
eroded. Whi|e corruption in Cermany has by no means approached the
As an example of inlernalional aclion againsl corruplion, lhe LCD
inilialive has lvo ma|or virlues. Iirsl, il relies on a broad polilical agree-
menl among slales lo aller lheir domeslic lavs inslead of allempling
lhe daunling lask of achieving unanimily on language for an inler-
nalional convenlion or lrealy or eslablishing a nev inlernalional regula-
lory agency. Second, paralleling US aclions in lhe drug var, il lakes a
supply-side ralher lhan a demand-side approach lo lhe problem. In lhe
long run, lo prevenl companies in vell-ordered induslrial counlries from
proffering bribes is clearly a far more manageable lask lhan achieving
ministers-Ior-sa|e |eve|s seen in France and especia||y lta|y, a spate oI
scanda|s has dea|t powerIu| b|ows to the Cerman nationa| se|I-image, and
corruption has emerged as an exp|osive issue Ior Cerman po|iticians. The
most wide|y pub|icized corruption case invo|ved CM subsidiary Adam Ope|,
in which 65 executives were investigated Ior taking bribes in an e|aborate
kickback scheme with supp|iers. A|so, a Iormer chairman oI the prestigious
Iirm Mannesmann was Iorced to resign Irom its board over charges oI
conI|ict oI interestan a|most unheard-oI deve|opment in the Cerman business
community ("Europes New Mora|ity," 8usincss Wcck, 18 December 1995).
ln 1995, a senior prosecutor a||eged that the Cerman construction industry
paid 10 bi||ion marks to corrupt oIIicia|s each year (Eurccan 8usincss
Rccrt 1995).
ln February 1995, the president oI the Federa| Crimina| OIIice described
domestic corruption as an epidemic (Eurccan 8usincss Rccrt, 17 Febru-
ary 1995). Adding to the pervasive sense oI ethica| co||apse was the
jai|ing oI the Iather oI Cerman tennis hero SteIIi CraI on tax-evasion charges
("Cermans Fear Corruption ls Eating at Heart oI the Nation," Timcs cI
Lcndcn, 26 August 1995).
A|so in 1995, Ber|in-based Transparency lnternationa| issued its Iirst
country-by-country ratings oI corruption. To the widespread dismay oI Cermans,
their country was shown to be regarded as more corrupt than Britain or
Switzer|and, a|though |ess dishonest than the United States, France, and
Japan. The issue has become one oI the |eading concerns oI the Cerman
pub|ic. A 1995 po|| by Dic Wcchc Iound that three-quarters oI Cermans
be|ieve po|itica| and economic |iIe to be serious|y threatened by corruption.
ln eastern Cermany, the Iigure ran as high as 84 percent (Timcs cI Lcn-
dcn, 26 August 1995).
Part|y as a consequence, the countrys opposition Socia| Democratic
Party was ab|e Ior the Iirst time to gain partia| passage in 1995 oI an
antibribery bi|| it has introduced annua||y Ior severa| years. The Cerman
Bundestag voted to make tax deduction oI domestic bribery i||ega|, even
though He|mut Koh|s ru|ing Christian Democratic Union successIu||y beat
back an eIIort to extend the prohibition to overseas bribery by Cerman Iirms.
ln eIIect, in the 1990s a host oI nations in Europe and AsiaCermany,
lta|y, France, Korea, Japanhave been experiencing an upheava| in many
ways comparab|e to Americas Watergate experience 20 years ago. The
po|itics oI scanda| is no |onger a pecu|iar|y American preoccupation but a
g|oba| po|itica| phenomenon.
cx 1 (+JEKA@)
lhe necessary legal and polilical reforms in lhe scores of developing
counlries vhere such bribes are roulinely accepled (lhough lhe Uniled
Slales simullaneously pushed for parallel reforms in Lalin America lhrough
negolialions lhal resulled in approval of an Inler-American Convenlion
Againsl Corruplion, signed by AS slales in March 1996). Indeed, lhe
LCD inilialive has been one of lhe mosl imporlanl and unsung achieve-
menls of Clinlon adminislralion foreign and lrade policy-one lhal could,
over lime, change lhe face of inlernalional commerce and vaslly curlail
opporlunilies for corruplion in lhe developing vorld.
Yel, despile lhe progress already made, lhe mosl imporlanl and con-
lenlious issue slill lies ahead: concrele recommendalions on lhe aclual
criminalizalion of bribery in inlernalional business lransaclions. Covern-
menls musl agree lo pass lavs lo make such bribery illegal. The largel
dale for final LCD recommendalions on criminalizalion is lhe organiza-
lions annual minislerial meeling in May 1997.
Moreover, even if lhe LCD minislers manage lo agree on final rec-
ommendalions, il vill remain for individual governmenls and legisla-
lures lo pass and, equally imporlanl, enforce lhe lavs necessary lo make
bribing foreign officials a crime. While lhe combinalion of a slrong LCD
slance and lhe conlinued public saliency of lhe corruplion issue is likely
lo vear dovn resislance lo such aclion over lime, lhere is lillle queslion
lhal achieving lhe needed legal reforms in Lurope-and perhaps even
more so in Asia-vill mean a prolonged and hard fighl.
Thus far, lhe Clinlon adminislralion appears commilled lo lhe ballle.
Iolloving reporls of lhe IM and oeing overseas bribery invesligalions,
US Trade Represenlalive Kanlor blasled Americas LCD parlners in
March 1996 for conlinuing lo permil overseas bribery and lhrealened lo
use lrade sanclions lo combal il (lhough he reporledly lacked cabinel
approval for lhe proposal and lhe Clinlon adminislralion has since been
silenl on lhe lhreal |Kanlors allle againsl ribery, jcurnc| c( Ccmmcrcc,
18 March 1996]). Kanlor also announced he vould press for reforms of
governmenl procuremenl slandards al lhe inaugural minislerial meeling
of lhe World Trade rganizalion in December 1996 (Kanlor Declares
War on ribes, lincncic| 1imcs, 7 March 1996, see Lllioll, chapler 10, on
lhe oulcome of lhe WT meeling).
ConcIusion: SeycheIIes by the Offshore
Slill, allhough lhe global lask of rooling oul corruplion remains enor-
mous and a vorld freed even of rampanl overseas bribery is undoubl-
edly slill some years avay, change is clearly in lhe air. Take lhe recenl
case of lhe liny island republic of Seychelles.
In lale 1995, lhe governmenl of lhe Seychelles islands enacled an
innocenl-sounding lav called lhe Lconomic Developmenl Acl. ne of
ils provisions offers foreigners lhal invesl more lhan $10 million im-
munily from proseculion on all criminal offenses. The language of lhe
slalule even ensures lhal lhe lav can be changed only lhrough a na-
lional referendum and a conslilulional amendmenl. Il is, in shorl, an
open, official, cynical invilalion lo money launderers and drug kingpins:
come lo lhe Seychelles vilh your dirly cash.
In a differenl era, lhe vorld vould almosl cerlainly have greeled such
a developmenl in a liny island nalion vilh indifference and inaclion.
Nol so loday. Almosl immedialely, lhe Luropean Commission, lhe LCD,
lhe Commonveallh Secrelarial, lhe US Slale Deparlmenl, lhe Irench
and rilish foreign minislries, Inlerpol, and lhe Iinancial Aclion Task
Iorce all denounced lhe lav, calling for ils revision and lhrealening
sanclions.
Iurlhermore, il vas announced lhal all financial lransaclions original-
ing from lhal counlry or rouled lhrough il vould be sub|ecled lo special
moniloring and lracking by regulalory and lav enforcemenl agencies
around lhe vorld (Seychelles Condemned over Money Launderers
Charler, lincncic| 1imcs, 3 Iebruary, 1996, Inveslmenl a la Seychelloise,
Lccncmist, 17 Iebruary 1996). While lhe lav has nol yel been revoked, lhe
inlernalional reaclion has almosl cerlainly already scared avay some of
lhe inveslors vhom lhe Seychelles governmenl vas hoping lo lure. Il
seems doublful, over lhe long run, lhal lhe lav vill survive such an
inlernalional assaull.
The Seychelles case provides a vivid illuslralion of lhree main lhemes
of lhis chapler. Iirsl, globalizalion has draslically allered lhe nalure of cor-
ruplion. Second, vhile recenl changes have opened nev avenues for
corruplion, lhey have also crealed nev condilions lhal provide unprece-
denled opporlunilies for conlaining or even reducing il. Third, because
corruplion is nov an inherenlly global problem, governmenls acling alone
can accomplish lillle. Syslemalic collaboralion and coordinalion among
lhe aulhorilies of differenl counlries has become an indispensable precon-
dilion for success in lhe anlicorruplion ballle.
These nev efforls al cooperalion may seem lo be small sleps lovard
lackling a garganluan problem. They are, hovever, gianl sleps com-
pared vilh vhal seemed possible even a fev years ago-vhich helps
explain vhy lhere is a groving sense in many quarlers lhal lhe fighl
againsl corruplion need nol be a losl ballle. Iolilical vill is combining
vilh nev lools and nev inslilulional arrangemenls lo creale a sound
basis for caulious oplimism.
Il is vorlh remembering lhal many ma|or, presenl-day inlernalional
inslilulions also began vilh vhal al lhe lime seemed ralher limiled lech-
nical agreemenls. Todays Luropean Union, for example, grev oul of an
arrangemenl originally designed lo coordinale coal and sleel policies.
Much of lhe inslilulional apparalus lhal nov exisls lo ensure a modicum
of slabilily in lhe vorlds financial markels originaled in modesl and
narrov accords lo share informalion. As Llhan Kapslein (1996) has vril-
len, lvo banking failures in lhe Uniled Slales and Cermany in 1974 had
massive falloul in lhe vorld money markels, prompling lhe cenlral
bankers of lhe Croup of Ten induslrialized counlries lo eslablish lhe
Slanding Commillee on anking Regulalions and Supervisory Iraclices,
also knovn as lhe asle Accord. The asle Accord originaled as an efforl
lo ensure a minimal level of supervision of inlernalional banks. Laler, as
a resull of lhe 1982 Mexican debl crisis, lhe members agreed on inlerna-
lional guidelines for minimum capilal requiremenls of inlernalional banks.
Comballing corruplion is cerlainly a bigger lask lhan regulaling fi-
nancial markels. ul lhe asle agreemenl is inslruclive, bolh as an
example of effeclive inlernalional aclion and as a model for lhe form
lhal such aclion is oflen likely lo lake in lhe presenl-day environmenl:
some combinalion of inlernalional harmonizalion of legislalion vilh
grealer home-counlry responsibilily for mullinalional firms aclions abroad.
In his classic lexl, 6ri|cs, vrillen more lhan a decade ago, }ohn Noonan
(1984) venlured lhe bold prediclion lhal as slavery vas once a vay of
life and nov . . . has become obsolele and incomprehensible, so lhe
praclice of bribery in lhe cenlral form of lhe exchange of paymenl for
official aclions vill |one day] become obsolele. Lven loday, Noonans
ambilious prophecy looks premalure, nol lo say ulopian. ul vhen a
fulure hislorian vriles lhe long and ugly slory of human corruplion,
lhere is reason lo suppose lhal lhe 1990s could be lo corruplion vhal
lhe 1850s vere lo slavery: a decade of irreversible change.
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