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CORRUPTION AND COMPETITIVENESS IN GLOBAL


BUSINESS - THE DAWN OF A NEW ERA
NIl LANTE WALLACE-BRUCE'

{Corruption in global business has been around for a very long time. Until recently it was regarded
as a fact of life and nobody seemed 10 be too concerned about it. In fact, economic theory preached
that Ihe payment of bribes and other forms of corruption were good for international business
because they were a way of overcoming barriers to business in some countries. Therefore. those who
were willing to pay bribes obtained a competitive advantage over their business rivals who were not
willing to do so. There was a view that corruption was entrenched in some cultures and so one had to
come to terms with it if one wanted to do business in those cultures. The result of these views was
that corruption was left to thrive in international business. From 1977 the United States began to
take action against its businesses and citizens to counter corruption; however, it remained a 'lone
ranger' and some believed that its businesses consequently lost their competitiveness relative to the
businesses that paid bribes. Today a paradigm shift is occuTTing-al/ over the world. Corruption in
global business is a big issue and there is a concerted international effort to tackle it head on. There
are initiatives in both the public and private spheres that aim to minimise, if not eliminate, corrup-
tion altogether.]

CONTENTS

I Introduction ............................................................................................................. 349


II A Culture of Corruption in Global Business ........................................................... 350
A Is Corruption Rooted in Culture? ............................................................... 351
B The 'International Cultural Dimension' ..................................................... 353
C Summary ..................................................................................................... 354
III The 'Corruption Eruption' ...................................................................................... 354
A The Magnitude of Corruption in Global Business ...................................... 355
B The Effects of Corruption in Global Business ............................................ 356
IV Combating Corruption in Global Business ............................................................ .359
A The Pioneering Role of the United States ................................................... 359
B The Paradigm Shift ..................................................................................... 362
C Multilateral Efforts at Combating Corruption ............................................ 366
D Australia's Implementation of the OECD Convention .............................. .369
E Other International Efforts .......................................................................... 372
V The Delicate Matter of Gift-Giving ........................................................................ 374
VI Conclusion............................................................................................................... 377

I INTRODUCTION

The world is currently witnessing a paradigm shift in attitndes towards corrup-


tion in global business. Not long ago a blind eye was turned to corruption in
international business transactions. Indeed, there was a view in certain quarters
that corruption was good for international business because it reflected the
cultnres of certain countries. Today the winds of change are decisively and

.. PhD (University of Sydney); Barrister and Solicitor of the Supreme Courts of ACT, Ghana and
Victoria; Solicitor of the Supreme Court of NSW and the High Court of Australia.

349
350 Melbourne University Law Review [Vo124

powerfully blowing against tbose views. A concerted internationar effort is under


way to raise awareness about corruption and to implement strategies to minimise
it substantially, if not eliminate it altogether.
It is tbe purpose of tbis article to analyse these developments critically. The
article starts by looking at tbe 'old world' view which created an environment in
which corruption thrived in international business. In tbe second part, the article
looks at the causes of change in our attitudes toward corruption in the global
business arena. Thirdly, the article studies the international initiatives currently
being undertaken to tackle the issue. Australia's contribution to this international
effort is given special consideration. Finally, tbe article critically discusses tbe
delicate matter of gift-giving and its implications for the fight against corruption
in global business.

II A CULTURE OF CORRUPTION IN GLOBAL BUSINESS


We seem to be suddenly waking up to tbe issue of corruption in global busi-
ness. However, it would be a mistake to assume tbat tbis is a problem of recent
origin. On tbe contrary, it would appear that corruption in international business
has a long history. As has been observed, 'many corporations have been paying
bribes around tbe world for decades.' I
In fact, it was not long ago that economic tbeory held that bribes and otber
forms of corruption were good for international business. It was argued tbat
paying bribes and other forms of corruption were legitimate means of overcom-
ing tbe barriers tbat some countries had imposed against entry into their markets.
Therefore, the argument went, companies which were willing to grease the right
palms in order to overcome tbose batriers obtained a competitive advantage over
businesses that were not willing to 'soil tbeir hands', so to speak. 2 Some econo-
mists even developed models which sought to demonstrate the efficiency
benefits that could be derived by companies giving bribes. 3
Particularly in relation to developing countries it was argued that, if corruption
was used 'appropriately', it could lead to economic growth and so assist national
development. From the perspective of foreign investors, corruption was regarded
not only as effective, but also as a necessary strategy to win business in devel-
oping countries. This view appeared to have gained strong ground in Asia, where
corruption in business practice became widespread in some countries until the
Asian financial crisis hit in 1997. A correlation was seen to exist between the
spectacular economic growtb rates which the tiger economies were achieving
and the practice of corruption in business. Specifically, countries like Thailand
and Indonesia were held up as providing empirical evidence of countries that

I Frank Vogel, 'The Supply Side of Global Bribery' (1998) 35(2) Finance & Development 30, 33.
2 Barbara Parker, Globalization and Business Practice: Managing across Boundaries (1998) 440;
John Brademas and Fritz Heimann, 'Tackling International Corruption: No Longer Taboo'
(1998) 77(5) Foreign Affairs 17, 17.
3 Some of the leading models are discussed in Vito Tanzi, 'Corruption around the World: Causes,
Consequences, Scope, and Cures' (1998) 45/MF StaJJPapers 559, 578. 581-2.
2000] Corruption and Competitiveness in Global Business 351

were achieving economic growth despite high levels of conuption - or even


because of conuption.4
Providing further credence to the view that conuption could contribute to
economic growth in developing countries was a study conducted by researchers
at Chulalongkorn University in Bangkok.' The results indicated that between
1993 and 1995 six major illegal activities6 associated with conuption contributed
a phenomenal US$24 to US$32 billion to the Thai economy. This amount
represented 8 to 13 per cent of Thailand's GDP.7

A Is Corruption Rooted in Culture?


Discussing conuption in developing countries inevitably raises the question of
whether or not conuption is rooted in culture. This is because it is common
knowledge that conuption in business is not restricted to Asia, but rather, it is a
feature common to many developing countries 8 Of course, the degree of
corruption varies from country to country. In some countries one experiences
conuption, albeit of the low-grade variety, at the fIrst point of entry into the
country. One discovers that, in order to get a smooth clearance through immigra-
tion and customs, some small payment to the officials concerned is expected or
else one could be subjected to frustrating delays.
Is conuption, then, culturally based? There is a view in certain quarters that
conuption has its roots deeply embedded in culture and that the reason why it
appears to be a common feature of developing countries is that the cultures of
those countries display common characteristics. For example, Short has noted
that:
It used to be commonplace for people to talk as though corruption was embed-
ded immutably in the culture of many countries, especially poor ones. There
was an assumption that corruption was an unavoidable part of international
business and that grease payments were necessary to get things done. 9
The following cultural characteristics have been identifIed as common to the
most conupt places:
• the cultures are 'relationship-focused' - personal connections are crucial;
• they are 'strongly hierarchical', valuing wide status differences; and
• they are 'polychronic, with a relaxed attitude toward time and schedul-
ing.'IO

4 !bid 578.
5 Pasuk Phongpaichit, Sungsidh Piriyarangsan and Nualnoi Treerat, Guns, Girls, Gambling.
Ganja: Thailands Illegal Economy and Public Policy (1998). See also Darrell Mahoney et aI,
International Business: A Managerial Perspective (1998) 343.
6 Other illegal activities mentioned are drug trafficking, contraband anns trading, smuggling of
diesel oil, trafficking in women for prostitution, certain fonns of gambling and trafficking in
human labour.
7 Phongpaichit, Piriyarangsan and Treerat, above n 5.
8 See, eg, Richard Gesteland. Cross-Cultural Business Behavior (1996) 94.
9 Clare Short, 'All Out War against Corruption' (1999) 243 African Business 24, 24. See also
Gesteland, who asserts that bribery is sanctioned by some cultures: ibid 91.
10 Gestcland, above n 8, 97-8. Gesteland discusses the term 'polychronic' at 101.
352 Melbourne University Law Review [Vo124

It is immediately striking that these cultural characteristics are common to


most, if not all, developing countries. The extent of the existence of those
characteristics may vary from country to country, and even within the same
country there may be marked variations; however, by and large, most developing
countries exhibit the identified cultural charactetistics that, according to Geste-
land, would make them susceptible to corrupt business practices.
The view that corruption is widespread in certain countries because it is sanc-
tioned by culture has, however, recently been strongly disputedI l It has been
pointed out that there appears to be no country in the world where corruption is
lawful.!2 On the contrary, it appears that corruption is illegal in every country.
Some countries may enforce their laws more vigorously than others. There may
be various reasons for the differences in approach, but it should not be presumed
that culture is causative of a less vigorous approach to eliminating corruption. If
a culture sanctions a particular type of conduct, but its parliament passes a law to
the contrary, it becomes the responsibility of government to ensure that the
parliament's will is obeyed. So long as the law remains in force and it is not
being enforced, the issues become the effectiveness of the law and the commit-
ment of the law enforcement agencies in the country to implementing the law. It
is not a case of the culture prevailing over the law. Hence, the view that corrup-
tion is sanctioned by some cultures has been dismissed as a myth. Empirical
work demonstrates that corruption, particularly bribery, is considered objection-
able everywhere: 'Every major religion or school of moral thought, including
Buddhism, Christianity, Confucianism, Hinduism, Islam, Judaism, SikhisID, and
Taoism, specifically condemns bribery. '13
Thus, whilst it can scarcely be disputed that there is widespread corruption in
some countries, the view that this is rooted in the culture of those countries is
now being seriously challenged. For example, Judge John Noonan Jr of Ber-
keley, California conducted a study of bribery and concluded that 'it is often the
Westerner with ethnocentric prejudice who supposes that a modern Asian or
African society does not regard the act of bribery as shameful in the way
Westerners regard it.' 14 Similarly, Dr Frene Ginwalla, Speaker of the South
African Parliament, has noted 'international corruption is often tacitly supported
and actively encouraged by Western countries' .15 She concluded that 'attributing
corruption to our [African] cultures is both arrogant and racist, as well as
convenient and self-serving. '16

11 Beverley Barle, 'The United States' Foreign COITUpt Practices Act and the OECD Anti-Bribery
Recommendation: When Moral Suasion Won't Work, Try the Money Argument' (1996) 14
Dickinson Journal ofInternational Law 207. 223.
12 'That bribes have to be paid secretly everywhere, and that officials receiving bribes have to
resign in disgrace if the bribe is disclosed. makes clear that bribery violates the moral standards
of the South and the East, just as it does in the West': Fritz Heimann, 'Should Foreign Bribery
Be a Crime?' in Jeremy Pope (ed), National Integrity Systems: The Tf Source Book (1996) pt C
ch 1(9), cited in Philip Nichols, 'Regulating Transnational Bribery in Times of Globalization and
Fragmentation' (J 999) 24 Yale Journal ofInternational Law 257,278.
13 Nichols, above n 12,278.
14 Judge John Noonan Jr, Bribes (1984) 703.
15 Quoted in Anver Versi, 'On Corruption and Corrupters' (1996) 215 African Business 7, 7.
16 Ibid.
2000) Corruption and Competitiveness in Global Business 353

B The 'International Cultural Dimension'


When discussing corruption in global business, some people tend to overlook
the general international context of the subject, focusing only on developing
countries. That corruption is widespread in some developing countries does not
need to be laboured here. However, corruption has been able to thrive in global
business because there has been a general international environment which has
favoured it. The attitudes of developed countries, international organisations and
others,I7 combined with the lax approach of some developing countries to law
enforcement, created a general culture of corruption in global business. Bribes
were supplied largely by multinational corporations from developed countries to
recipients in developing countries. Some key international organisations saw it
happening but ignored it because combating corruption was not a part of their
functions. 18 It was a combination of these attitudes that resulted in corruption
gaining strong ground in certain countries. As long as business was booming it
was argued that there was no need to investigate corruption too closely. What
happened in certain parts of Asia prior to the 1997-98 financial crisis is now a
classic case On point. 19
In particular, it should be pointed out that, until recently, the tax laws of most
developed, industrialised countries allowed for the tax deductibility of bribes
given by their companies in transactions abroad as legitimate business expenses.
Countries like France, Germany, Canada and Australia, to name only a few,
permitted this practice. 2o This meant that, whilst it might have been illegal for a
company to engage in a corrupt practice at home, the same company was
allowed to gain a tax benefit from doing the same thing overseas. What could be
more encouraging for a company to engage in a practice than that the practice
attracted tax benefits? A consequence of these legislative regimes was that they
effectively permitted companies doing business abroad to engage in widespread
corruption.
As a general proposition, the law is not likely to permit expenses which are
incurred in the course of illegal activities to be claimed as tax deductions.
However, the practice of allowing tax deductibility for bribes given overseas,
which existed in many developed countries until the late 1990s, no doubt created
a duplicitous situation within their laws. Because the criminal law prohibited
corruption at home, but the tax law permitted deductibility for the same act
committed abroad, corruption abroad was indirectly sanctioned.
As was stated earlier, some international organisations seem to have contrib-
uted to the emergence of this international culture of corruption of which
multinational corporations made full use. In particular, key international eco-
nomic organisations such as the World Bank and the International Monetary
Fund ('IMF') seemed unconcerned about the prevalence of corruption in global
business. As far as they were concerned, corruption was a political issue and
17 Such as the prevailing economic theory which preached that corruption was good for interna-
tional business.
18 See below n 21 and accompanying text.
19 See above nn 4-7 and accompanying text.
20 See, eg, Versi, above n 15, 7.
354 Melbourne University Law Review [Vo124

therefore feU outside the scope of their operations. 21 Thus, the World Bank and
the IMF felt that it was the responsibility of governments to deal with the issue
of corruption, despite experiencing it themselves in their work. Yet these same
governments were permitting their companies to gain tax deductions for bribes
given in the course oftheir international business transactions.

C Summary
Corruption is a fact of life in global business, and has been for a very long
time. Until recently, a number of circumstances combined to create an interna-
tional environment conducive to corruption in business. Bribes were supplied
largely by companies from developed countries seeking business opportunities in
developing countries. They gained tax deductions at home for this legitimate
business expense. Some people have held the view that corruption is part of the
culture of some countries. In the past this has been used as justification for
'joining' them in engaging in corrupt activities. It was a case of 'when in Rome,
do as the Romans do'. There is no dispute that corruption is widespread in some
countries; however, there is no longer a general consensus that corruption is
sanctioned by these cultures. Indeed, the view that corruption is sanctioned by
some cultures is now being seriously questioned. 22

III THE 'CORRUPTION ERUPTION'


The rhyming term, 'corruption eruption', has been coined to describe the
almost sudden explosion of the corruption debate. 23 As already noted, until
recently the question of corruption in global business was non-contentious.
Corruption was accepted as part of life in the international business arena. Many
states tacitly permitted their nationals to engage in corruption abroad, and it was
argued that those who were willing to engage in corruption obtained a competi-
tive edge over their rivals. The one glaring exception was the United States,
which enacted legislation in 1977 but has remained a 'lone ranger' until now.24
There is evidence to show that some developed countries strongly resisted
attempts by the US to bring the issue to prominence through open debate and to
take action against corruption.25 For example, former President Jirnmy Carter,
who championed the enactment of the US legislation, was ridiculed as a 'do-

21 lames Wolfensohn, 'Corruption Impedes Development - and Hurts the Poor' (1998) 25(4)
International Journal of Government Auditing 1, 1; Brademas and Heimann, above n 2, 20;
Susan Rose-Ackerman. 'The Role of the World Bank in Controlling Corruption' (1997) 29 Law
and Policy in International Business 93, 93.
22 Another dimension of this issue is considered in the context of gift-giving in below Part V.
23 Philippe Pierros and Christian Hudson, 'The Hard Graft of Tackling Corruption in International
Business Transactions' (1998) 32(2) Journal o/World Trade 77, 79.
24 This is explained in below Part IV.
25 Earlier attempts by Transparency International to discuss the matter with officials in some
European countries were rebuffed. See Frank Vogel, above n 1, 31. See also Steven Salbu,
'Bribery in the Global Market: A Critical Analysis of the Foreign Corrupt Practices Act' (1997)
54 Washington & Lee Law Review 229, 262. For more infonnation about Transparency Interna-
tional, see below no 95-107 and accompanying text.
2000] Corruption and Competitiveness in Global Business 355

gooder' who did not understand the realities of global business. 2• Specifically,
Japan and some European countries were unco-operative in relation to earlier
attempts to tackle the issue. Perhaps most illuminating in this context was the
position taken by Germany. Joachim Griinewald, the German Secretary of State
for Finance, argued that payments made by German firms to win business in
other countries should not be considered corrupt because they were 'marketing
costs' rather than bribes. Griinewald maintained that prohibition of such pay-
ments 'would damage Gennan finns in the international market and threaten
jobs'27
It is against this background of official inertia and resistance that the corrup-
tion debate has erupted. Some commentators have referred to 1995 as 'the year
of corruption' .28 In that year corruption in global business came out of the
woodwork and into the open. It has since become a big issue. Particularly in the
last two years or so, the issue has gathered momentum and this is likely to
continue well into the 21" century. There are a number of reasons behind this
paradigm shift in attitudes towards corruption in global business. Before
considering these, however, attention should be focused on the size of the
problem.

A The Magnitude of Corruption in Global Business


There is some debate as to whether the 'corruption eruption' reflects an in-
crease and spread of the problem of corruption in global business or whether it is
merely a reflection of a growing awareness of a situation that already existed.
Some people argue that all that has happened is that people are now becoming
aware of the issue and, as they talk about it, what was previously swept under the
carpet is surfacing.29 From this perspective, there is really nothing new.
On the other side of the debate are those who contend that corruption in global
business is indeed on the increase and getting worse. They point to the fact that
the huge increase in global trade and investment in recent years has provided
ample opportunities for corruption to occur in international business transac-
tions 30 Research conducted by Transparency International supports the view that
there appears to have been an increase in corruption in recent times. 3 )

26 Earle, 'The United States' Foreign Corrupt Practices Act', above nIl, 209.
27 Frederick Stiidemann, 'A Land Where Bribes Are Tax-Deductible', European (London,
England), 17 June 1994, 3 cited in ibid 234. Similarly. fonner British Cabinet Minister, Lord
Young (now Chair of Cable and Wireless) was reported to have argued that 'bribery abroad was
"good" for job creation at home', according to Or Frene Ginwalla, Speaker of the South African
Parliament: quoted in Versi, above n 15, 7.
28 See, eg, Tanzi, above n 3, 560.
29 Eg Tanzi, above n 3, 560-1.
30 Eg Nichols, above n 12, 272-3; Carolyn Hotchkiss, 'The Sleeping Dog Stirs: New Signs of Life
in Efforts to End Corruption in International Business' (1998) 17 Journal of Public Policy &
Marketing 108, 109-10.
31 Transparency International, Annual Report /995 (1995); Transparency International, Annual
Report 1996 (1996); Transparency International, Annual Report 1997 (1997). These reports were
cited in Pierros and Hudson, above n 23, 78. For more infonnation about Transparency Interna·
tionaI, see below nn 95-107 and accompanying text.
356 Melbourne University Law Review [Vo124

Whichever view is correct, there seems to be general agreement that corruption


in global business is a serious problem today. However, by its very nature it is an
extremely difficult task to ascertain the size of the problem. Most reporta and
commentaries tend to focus on bribery,32 which is only part of the problem. Even
then, some of the figures which have been put forward must raise alarm.
According to unconfirmed estimates, bribery in global business transactions
would be in the order ofUS$80 billion a year, a figure most observers believe to
be a gross underestimate. 33 Estimates from other sources can be combined to
gain a reasonable approximation of the size of the problem. On 17 March 1995
Le Monde reported that a confidential government report had estimated that
French companies paid bribes abroad amounting to FRFIO billion in 1994
alone. 34 German companies were estimated to have paid bribes in their foreign
operations of over US$3 billion in 1996 alone. 35
According to Transparency International, corrupt payments account for about
10 to 20 per cent of all global business transactions. 36 This estimate can be put
into perspective when it is considered that more than one trillion US dollars
worth of infrastructure projects are planned for Asia, Latin America and the
Middle East in the near future. 37 Other helpful estimates have been made in other
conntries. Hong Kong businesspeople estimate that bribes account for about five
per cent of the cost of conducting business in China38 The cost is estimated to be
up to 20 per cent in Russia and even higher in Indonesia. 39
While quantifYing the size of corruption in global business is essentially an
exercise in 'guesstiroation', anyone of the estimates given here by itself suggests
that the problem is not one to be easily dismissed. When all the estimates are
considered together, it becomes clear that corruption is a huge international
problem. Moreover, one gets the impression that corruption is widespread
geographically and is not confined to particular parts of the world.

B The Effects of Corruption in Global Business


Reference has already been made to some possible benign effects of corrup-
tion. The Chulalongkom University study mentioned above4o found that corrup-

32 See, eg, Susan Rose-Ackerman, Corruption and Government: Causes. Consequences and
Reform (1999).
33 See Rex Zedalis, 'How Does the New OEeD Convention on BribeI)' Stack Up against the
Foreign Corrupt Practices Act?' (1998) 32(3) Journal of World Trade 167. 168. See also Organi·
sation for Economic Co·Operation and Development Anti-Corruption Unit, Frequently Asked
Questions (2000) Organisation for Economic Co-Operation and Development
<http://www.oecd.orgldaflnocorruptionlfaq.htm>at I August 2000 (copy on file with author).
34 Jacques Isnard, 'Les commissions sur les ventes fran~ises a 1'6tranger ont atteint 10 milliards
de francs en 1994', Le Monde (Paris, France), 17 March 1995,2 [trans: 'Bribes on French Sales
Overseas Reach 10 Billion Francs in 1994 '] cited in Tanzi, above n 3, 563.
35 See Tanzi, above n 3, 563, citing World Business, 4 March 1996.
36 See, eg, Pierros and Hudson, above n 23, 78.
37 Pierros and Hudson, above n 23, 78, citing former US Under-Secretary of Commerce for
International Trade, Jeffrey Oarten.
38 Gesteland, above n 8, 93.
39 Ibid.
40 See above nn 5-7 and accompanying text.
2000] Corruption and Competitiveness in Global Business 357

tion made a not insignificant contribution to the Thai economy and, specifically,
it generated jobs in some sectors of the national economy. These findings may
also have general application to other developing countries, especially those at
the lower end of the economic spectrum. Reference was made earlier to the
economic school of thought which held that bribery removed trade barriers and
provided a competitive advantage to business.4I
Another benign effect of corruption which is often discussed in the literature is
that corrupt payments supplement the income of workers whose wages are so
low that they can hardly rely on them to support their families. 42 This is particu-
larly true of petty corruption in the form of 'grease payments' made to low-
ranking government officials (although this also applies to the commercial
sector) to 'motivate' them to perform their usual duties. The reasoning here is
that these officials are not being asked to do anything illegal or improper; the
payment simply ensures that they apply speed and diligence to their duties to
avoid what is otherwise a slow pace of work. This practice has been described as
follows: 'In some respects, this is an informal 'user pays' mechanism, whereby
the users of government services top up government workers' salaries - those
who use the service, pay for it. '43 It is, therefore, not surprising that poorly paid
jobs in the police, immigration, customs and tax departments of some developing
countries receive a disproportionately large number of applications for employ-
ment. 44 At any rate, several studies have found a direct correlation between
poverty and corruption 4S
If the aforementioned arguments can be considered 'positive' effects of cor-
ruption, they are far outweighed by the negative effects. On the economic front,
corruption has a number of harmful effects on the economies of both the
corrupter and the corrupted. First, few would dispute that corruption reduces
official government revenues. As people bribe their way through government
processes, they are able to avoid the payment of tax and other charges which
should have gone to government revenue 46 Second, transaction costs for the
corrupter increase as a consequence of corruption. This becomes an additional
cost to its business operation which the corrupter would try to recoup from
somewhere else, such as through inflated prices or through the tax deduction of
business expenses in its home country.4? For example, German officials have
estimated that the German economy loses DM50 billion per year as a conse-
41 See above nn 2-4 and accompanying text.
42 A detailed discussion oftbe relationship between the level of wages and corruption can be found
in Tanzi, above n 3, 572-3. See also Bruce Zagaris and Shaila Ohri, <The Emergence of an
International Enforcement Regime on Transnational Conuption in the Americas' (1999) 30 Law
and Policy in International Business 53, 53; Hotchkiss, above n 30, 111.
43 Michael Backman, Asian Eclipse: Exposing the Dark Side of Business in Asia (1999) 28. See
also Rose-Ackennan. <The Role of the World Bank'. above n 21, 93; Salbu, above n 25. 242.
44 It has been commented that in Indonesia during the Suharto period, many positions in the
bureaucracy were <effectively auctioned' because junior officers had to share their bribery tak-
ings with their superiors: Backman, above n 43, 31. The tax administrations of countries such as
Peru and Uganda were so plagued by conuption that they decided to get rid of them and start
afresh: see Tanzi, above n 3, 568.
45 Eg Gesteland, above n 8, 94; Tanzi, above n 3, 586.
46 Salbu, above n 25, 251.
47 Ibid. See also Rose-Ackerman, Corruption and Government, above n 32.
358 Melbourne University Law Review [Vo124

quence of inflated contract prices and loses additional tax revenue as a conse-
quence ofbribes.48
Third, it has been shown that there is a direct correlation between the levels of
corruption and foreign investment. Where there is marked corruption in a
country, foreign investment tends to decrease, which in turn leads to slower
economic growth49 In the first half of 1996 Vietnam suffered a sharp drop
(48 per cent) in foreign investment, which has been attributed in part to marked
levels of corruption in that country.so On the other hand, the absence or low
levels of corruption encourages foreign investment, which in turn leads to greater
economic growth.
Fourth, corruption distorts global business generally because transactions are
not made on the basis of supply and demand and the efficient allocation of
resources. SI Development projects, which may be vital to a country's economic
progress, could suffer as funds are diverted elsewhere. Those providing the
development assistance may become frustrated and in the end may reduce or cut
off their assistance. At the end of the day, it is the country as a whole which
suffers and, in particular, the poor in the society52 As the recent histories of
Nigeria, Indonesia and the Democratic Republic of Congo (formerly Zaire) have
demonstrated, when corruption becomes pervasive, it can bring a country to its
economic knees. 53
Fifth, corruption has harmful effects on the social and administrative systems
of a country.S4 As far as the latter is concerned, corruption undermines the
effectiveness and efficiency of a government's administrative machinery. For
example, those responsible for issuing licences and permits may deliberately
slow down the wheel of public administration so as to create an enviromnent
conducive to obtaining more 'kickbacks'. Confidence in, and respect for, public
services are eroded when corruption becomes a feature of a government's
administrative system. ss Corruption can also create serious social problems. 56
When a perception is created that only some people are benefiting from the
national wealth, because they are placed in 'strategic positions' in their jobs that
provide them opportunities to accept corrupt payments, this no doubt leads to
feelings of inequity and resentment. Over time, as this resentment builds up, it

48 BrandoD Mitchener, 'Gennany Says Business Bribes on the Rise', The Wall Street Journal (New
York, USA), 14Apri11997, 12, cited in Hotchkiss, above n 30,110.
49 'The negative association between corruption and investment, as well as growth, is significant in
both a statistical and an economic sense': Paulo Mauro, 'Corruption and Growth' (1995) 110
Quarterly Journal of Economics 681, 705. See also Pierros and Hudson, above n 23, 78;
Wolfensohn, above n 21, 1.
50 Bany O'Keefe, 'Under the Table or Above-Board?' (1997) 67(9) Australian Accountant 26,26.
51 A detailed discussion of the economic effects of corruption is contained in Tanzi, above n 3,
578-86. See also Salbu, above n 25, 249; Pierros and Hudson, above n 23, 78.
52 Wolfensohn, above n 21, 1; Eade, 'The United States' Foreign Corrupt Practices Act', above
nl1,222; Short, above n 9, 25.
53 Nichols, above n 12, 276. It has been argued that in the Asian financial crisis of 1997-98, a
country's 'degree of collapse was in direct proportion to its level of cronyism, corruption, poor
legal structures, poor corporate accountability, and general ethics': Backman, above n 43, 4.
54 Tanzi, above n 3, 582-5.
55 Salbu, above n 25, 252.
56 Nichols, above n 12,279.
2000] Corruption and Competitiveness in Global Business 359

can ignite a national uprising of one kind or another, as recent events in the
Democratic Republic of Congo, Nigeria, Indonesia and Russia have demon-
strated.
Closely related to this last point is the potential for corruption to undermine the
democratic process. 57 This is especially true of grand corruption, in which senior
government officials and ministers (and even the head of state) slice off fixed
percentages of every sizeable business transaction. Feelings of alienation are
bound to arise when the perception is created that the country's leaders do not
really care about citizens and probity in government, but rather that they are only
interested in amassing personal wealth. 58 Corruption allegations have led to the
downfall of a number of political leaders around the globe in recent times.
Prominent among them are President Suharto of Indonesia, Prime Ministers
P V Narasimha Rao ofIndia and Benazir Bhutto of Pakistan, as well as Bhutto's
successor, Nawaz Sharif. Corruption allegations also led to the imprisonment of
former South Korean Presidents Roh Tae Woo and Chun Doo Hwan. 59

IV COMBATING CORRUPTION IN GLOBAL BUSINESS

A The Pioneering Role of the United States

In 1977 the US blazed the trail by enacting legislation to combat corruption in


global business. Under the Carter Administration the US Congress passed the
Foreign Corrupt Practices Act of 1977.60 This was after a series of revelations
about US corporations making corrupt payments to foreign government officials
to win business, which was not only damaging to the image of the US abroad,
but also undermined public confidence at home. 61 Perhaps the most dramatic
were revelations of payments made by Lockheed Corporation, which eventually
resulted in the downfall of the governments of Italy, Holland and Japan. But it
later came to light that corporations such as Exxon (US$56.7 million) and
Nortbrop (US$30.7 million) and over four hundred other US corporations,
including J 17 Fortune 500 companies, had made corrupt payments in their global
business transactions. 62

57 Ibid; Rose-Ackennan, 'The Role of the World Bank', above n 21, 93; BarIe, 'The United States'
Foreign Corrupt Practices Act', above nil, 223; Short, above n 9, 25.
58 The Asian fmancial crisis revealed that the countries in which corruption was rife also had
weaker political and democratic systems. Indonesia provides the exemplar. See Baeianan,
above n 43, 4-5.
59 Brademas and Heimann. above n 2, -18; Hotchkiss, above n 30, 110; Joongi Kim and Jong Bum
Kim, 'Cultural Differences in the Crusade against International Bribery: Rice-Cake Expenses in
Korea and the Foreign Corrupt Practices Act' (1997) 6 Pacific Rim Law & Policy Journal 549,
567-8.
60 Pub L No 95-213, 91 Slat 1494 (l977)('FCPA').
61 Some of the revelations first came out of the Watergate investigations. See Beverley Eade,
'Foreign Corrupt Practices Act Amendments: The Onmibus Trade and Competitiveness Act's
Focus on Improving Investment Opportunities' (1989) 37 Cleveland State Law Review 549, 550;
Kim and Kim, above n 59, 571. For a background to the legislation, see United States v Blondek,
741 FSupp 116, 117-18 (NDTex, 1990). .
62 US Securities and Exchange Commission, Questionable and Illegal Corporate Payments and
Practices (1976), cited in Kim and Kim, above n 59. and Salbu, above n 25, 239.
360 Melbourne University Law Review [Vo124

The FCPA, in its original version, had two broad strategies. First, it created
stringent new accounting and reporting standards which US corporations had to
meet. They were required to keep accurate records and to disclose all payments
made, thus discouraging the payment ofbribes. 63 Secondly, the FCPA contained
anti-bribery provisions. In particular, s 103 made it unlawful for a US entity to
pay a bribe to a foreign official, or attempt to do so, for the purpose of winning
or retaining business. The provision applied whether the act was done directly or
indirectly. Penalties for violations were in the form of fines of up to
US$1 million for corporations and fines of up to US$IO 000 and imprisomnent
for up to five years for individuals. 64
The Carter Administration had hoped that its legislation would be seen as a
model to be followed across the world. However, the legislation was severely
criticised both domestically and abroad. Outside the US the initiative was
criticised as 'misguided American moralism '65 and was ignored. Many devel-
oped countries, which the US had hoped would follow its lead, continued to
allow the tax deductibility of bribes as business expenses. At home the legisla-
tion was criticised as unnecessary and ineffective. The lack of enforcement
action taken under the legislation in the years following its enactment gave
credence to the criticisms that it was ineffective. In its first decade of existence
only 23 prosecutions were launched by both the Securities and Exchange
Commission and the Department of Justice, the two bodies responsible for
enforcing the legislation 66
In the 1980s numerous attempts were made to amend the FCPA. Eventually
this was achieved through the Omnibus Trade and Competitiveness Act of
1988.67 Substantive and technical amendments were made to the FCPA by this
Act. One notable change was the exemption for routine govermnent action. The
original version of the Act had provided an exemption for payments to foreign
officials performing essentially 'ministerial or clerical' duties. This was consid-
ered ambiguous, creating confusion for the business community. The 1988
amendments clarified the position by exempting payments made by a US
business overseas for the purpose of having a 'routine government action'
performed. The amendments also substantially increased the penalties for
violation. A corporation became liable for a fine of up to US$2 million (previ-
ously, it was US$I million) and a natural person became liable for fines of up to
US$IOO 000 (previously US$IO 000). The term of imprisomnent was not
changed; it remained five years 68

63 EarIe, 'Foreign Conupt Practices Act Amendments', above n 61, 550; Kim and Kim, above
n 59, 572; Salbu, above n 25, 239.
64 FCPA Pub L No 95-213 s 103, 91 Slat 1494, 1496 (1977). The penalty provisions in the FCPA
amended the Securities Exchange Act of 1934 s 32, 15 use s 78ff. See also Earle, 'Foreign
Corrupt Practices Act Amendments'. above n 61, 551; 8atbu, above n 25, 242.
65 Brademas and Heimann, above n 2,17. 8atbu refers to 'moral imperialism': 8atbu, above n 25,
275--6. See also Hotchkiss, above n 30, 108, Ill.
66 Salbu, above n 25, 242-3, fn 87.
67 Pub L No 100-418, 102 Slat 11 07 (I 988).
68 Omnibus Trade and Competitiveness Act of 1988 Pub L No 100-418 s 5003(b), 102 Stat 1107,
1419 (1988). This amended the Securities Exchange Act of J934 s 32(c). 15 USC s 78ff. See also
Barle, 'Foreign Corrupt Practices Act Amendments', above n 61, 554-5.
2000] Corruption and Competitiveness in Global Business 361

The amendments breathed new life into the FCPA, but prosecutions were still
few and far between. For example, in 1989 Young & Rubicam, an advertising
fInn, pleaded gnilty to a felony in connection with a contract with the Tourist
Board of Jamaica by which the agency had used a fonner Jamaican Minister of
Tourism to funnel money through to the current minister. The fIrm agreed to pay
fInes of US$500 000 in settlement69 Another example involved Vitusa, a US
company that had a contract for the sale of powdered milk to a Dominican
Republic company. Vitusa pleaded gnilty over the payment of what it termed
'service fees' to an agent. In settlement, a two year probation was imposed on the
company's president and personal and corporate fInes of US$20 000 were also
imposed. 7o
Criticisms of the FCPA continued into the 1990s. As late as 1997 some people
were calling for its removal from the statute books. In particular, one scholar,
Salbu, argned forcefully for the Act's repeal, taking the position that '[b]ribery
has continued to thrive during nearly two decades of the legislation's existence,
and prosecutions have been rare. -71 He continued:
While the FCPA appears to have had little effect in reducing global corruption,
it has yielded untoward side effects. Because of the FCPA's vagneness and the
complexity of the international context in which it operates, the FCPA has a
chilling effect on legitimate transactions. Moreover, the FCPA engenders
worldwide hostility for its insupportable invasiveness into local sovereign
autonomy. Finally, because the nuances of varying practices around the world
must be understood in their cultural context, the FCPA's bluntness subjects
Congress' efforts to justifIable charges of ethnocentrism and moral imperialism.
Accordingly, Congress should abolish the FCPA, and the United States should
cease efforts to persuade other nations to enact their own versions of the
FCPA72
The US did not respond to the call, but remained the 'lone ranger', fIghting
against corruption in global business whilst its competitors continued to allow
the tax deductibility of bribes as a business expense. US authorities were
attacked for making their country's businesses uncompetitive in the global
marketplace. 73 However, there is some dispute about whether the US actually
became competitively disadvantaged. US companies found creative ways to be
competitive in the global marketplace without having to engage in outright
corruption. For example, IBM donated US$25 million in hardware and software
to 20 Chinese universities, whilst Union Texas Petroleum Holdings !nc of
Houston entered into a joint venture with the Government of Pakistan that
involved the US company offering to spend more than US$200 000 annually to

69 Salbu, above n 25. 236; Earle, 'The United States' Foreign Corrupt Practices Act', above n 11,
213.
70 Salbu, above n 25, 237; EarJe, 'The United States' Foreign Corrupt Practices Act', above n 11.
215. See also United Stales v Liebo, 923 F 2d 1308 (Sth Cir, 1991).
71 Salbu. above n 25, 287.
72 Ibid.
73 See, eg, Nichols, above n 12,287.
362 Melbourne University Law Review [Vo124

train government personnel. 74 Nevertheless, US officials calculatedthat, in a one


year period between April 1994 and May 1995, its companies lost approximately
100 overseas contracts worth US$45 billion because of the corrupt practices of
other bidders. 75 A further US$20 billion was lost in the first half of 1996.16 Even
if the amount lost by the US is no more than half of this figure, over a period of
more than two decades, it represents a substantial loss of business to other
countries.
As a result, there was pressure from within the US to end its isolation and to
'level the playing field', either by repealing its legislation or getting other
countries to adopt similar legislation. Furthermore, criticism continued to be
directed at the small number of prosecutions under the US legislation. Conse-
quently, the US had to step up its efforts to get other countries to join it in the
fight against corruption in global business.

B The Paradigm Shift


International attitndes towards corruption generally began to change in the
early 1990s. A combination of factors can account for this shift. Upon taking
office the Clinton Administration effected a significant change in US policy. It
adopted a two-pronged attack on corruption in global business - increased
enforcement at home and the gathering of international support for a united
approach.
The mid-1990s saw more vigorous enforcement of the FCPA by the two agen-
cies that are responsible for its enforcement. In 1995 Lockheed Corporation was
charged with paying US$I million to an Egyptian official to facilitate the sale of
aircraft to Egypt. Lockheed Corporation pleaded gnilty and was fined
US$24.8 million, a figure representing double the amount it made on the
transaction. One of the corporation's executives pleaded guilty while another
fled to Syria. He was subsequently deported and retnrned to the US after
negotiations between the US and Syrian governments 77 He was fined
US$125 000 and jailed for 18 months, thus becoming the first person to be jailed
under the Act. 78 Lockheed Corporation was also investigated by a federal grand
jury over alleged corrupt payments to the Korean Government on the sale of
some military aircraft. 79 In 1996 IBM and Boeing were also investigated for
possible violations of the FCPA concerning payments they made to officials in
Argentina and the Bahamas respectively80
In the same year the Securities and Exchange Commission indicated its inten-
tion to be more vigorous in its enforcement actions. It ended a 10 year hiatns
when it brought civil proceedings against Montedison SpA for bribes paid to

74 Parker, above n 2, 442. The competitiveness issue is critically analysed in Nichols above n 12,
288-90.
75 Hotchkiss, above n 30, 110.
76 Zedalis, above n 33, 168.
77 Hotchkiss, above n 30, 110.
78 Ibid; Earle, 'The United States' Foreign Corrupt Practices Act', above n 11, 212.
79 Salbu, above n 25, 237.
80 Ibid.
2000] Corruption and Competitiveness in Global Business 363

officials in ltaly.81 The following year another civil action was brought 'against
Triton Energy Corporation and two of its employees. It was alleged that the
company had used its Indonesian business agent to bribe Indonesian government
officials. As part of a settlement, the company paid a fine ofUS$300 000 and the
two employees were fined US$50 000 and US$30 000. 82
The second prong of Clinton's approach was to galvanise international support
against corruption in global business. In 1988, when the Congress amended the
FCPA, it requested the US President to enter into discussions with the Organisa-
tion for Economic Co-operation and Development ('OECD') with a view to
winning its support on the issue. 83
A very important strategy in Clinton's approach was to shift the basis of the
issue from a moral foundation to an economic one. When the Carter Administra-
tion first began the campaign against corruption it was couched in terms of
ethics, no doubt influenced by the revelations of the use of 'slush funds' during
the Watergate hearings. 84 The campaign was presented as a moral issue: a good
thing for business and for all, and therefore worth fighting for. This approach put
the US at odds with other countries, who saw the US as taking the high moral
ground. Among other things, the US was criticised for 'arrogance' and 'cultural
imperialism'85 Not only did this make it difficult for the allies ofthe US, such as
the OECD members, to embrace the campaign, it also made it difficult for them
to sell such a campaign to the developing world. 86 Countries such as the United
Kingdom, France, Germany and Japan strongly resisted the push by the US.8'
The following statement of Lord Young, former head of Cable and Wireless
and formerly Secretary of State for Trade and Industry for the United Kingdom,
may be regarded as representing the dilemma in which these countries found
themselves:
Now when you're talking about kickbacks, you're talking about something
that's illegal in this country, and that of course you wouldn't dream of doing ...
but there are parts of the world I've been to where we all know it happens, and
if you want to be in business, you have to do [sic].88
The flip side of this difficulty was that the developed countries left themselves
open to charges of moral hypocrisy in that the bulk of the companies that gave
the bribes came from developed countries. Further, they were allowing tax
deductions for precisely the same payments when made abroad.

81 Hotchkiss, above n 30, 110.


82 Ibid.
83 Ibid 108; Kim and Kim, above n 59, 572; Earle. 'The United States' Foreign Corrupt Practices
Act', above nIl. 224-5.
84 Earle, 'The United States' Foreign Conupt Practices Act', above n 11; Hotchkiss. above n 30,
111.
85 Hotchkiss, above n 30, 108, 113.
86 Ibid 111. Salbu argues that ·the aggressive imposition of culture-specific values on other
societies may engender resentment and hostility, potentially placing unnecessary strain on inter-
national relations': Salbu, above n 25, 278.
87 Salbu, above n 25, 262.
88 Joanna Pitman, 'Treaty Spells Payback Time for Corrupt Businessmen', The Times (London,
United Kingdom), 11 June 1997,29. This statement was made during an interview with the BBC
in 1994.
364 Melbourne University Law Review [Vo124

Consequently, the Clinton Administration switched from the moral argument


to the economic one. 89 This proved to be a masterstroke. Corruption is now
openly debated and the negative effects it has on the economy are being demon-
strated. The issue has therefore caught the attention not only of business execu-
tives and political leaders across the world, but also that of international eco-
nomic organisations and other stakeholders. As it has been poignantly observed:
The rethinking of corruption in economic tenns has enabled researchers to en-
gage in research on the transaction costs of bribery and corruption, analyzing
the impact of corruption in terms that lenders, businesses, and policymakers
can understand and use. One recent study, by Shang-Jin Wei of Harvard Uni-
versity. analyzed the cost of corruption in tenns of a tax on foreign investment
and business and found that moving from a country with a low level of corrup-
tion, such as Singapore, to a country with the level of corruption of Mexico had
the equivalent effect of a 20% tax on foreign business.90
The first breakthrough for the US came in 1994 when the Council of the
OECD adopted an Anti-Bribery Recommendation.91 It was recommended that
'[m]ember countries take effective measures to deter, prevent and combat the
bribery of foreign public officials in connection with international business
transactions.'92 The US pushed for this Recommendation to be legally binding,
but once again Japan and the European countries opposed this.93 The US was
not, however, deterred. In 1995 its Trade Representative, Charlene Barshefsky,
indicated that the US intended to campaign more aggressively for the major
trading nations to adopt anti-corruption legislation similar to its own.94
The other key player in the campaign to raise awareness of corruption in
global business and to galvanise international action against it has been Trans-
parency International. 95 Established in Berlin in 1993 as a non-governmental
organisation along similar lines to Amnesty International, Transparency Interna-
tional has been at the forefront in the campaign against corruption. Although it is
not the only organisation currently campaigning against corruption in the world,
it would appear that Transparency International is the only one whose sole
objective is to curb corruption both at the national and international levels. 96
Transparency International has adopted both a holistic and a proactive approach

89 Earle, 'The United States' Foreign Corrupt Practices Act', above n 11. A detailed economic
argument against bribery, or what EarIe tenns 'bribonomics', can be found in Part III of the
article. See also Wolfensohn, above n 21, 1; Tanzi, above n 3, 578-86. However, we have been
reminded that '[w]e delude ourselves if we think bribeIy to be purely economic conduct incapa-
ble of leading to fear, cruelty and humiliation': Martin Davies, 'Just (Don't) Do It: Ethics and
International Trade' (1997) 21 Melbourne University Law Review 601,614.
90 Hotchkiss, above n 3D, 111. See also Ayesha Qayyum, 'New Anti-Bribery Treaty Analyzed'
(1998) 28 International Commercial Litigation 27, 28.
91 OECD, Recommendation of the Council of the OECD on Bribery in International Business
Transactions annexed to OECD, aECD Governments Agree to Combat Bribery, Press Release,
SGIPRESS(94)36 (27 May 1994) 2; 33 ILM 1389, 1389.
92 Ibid art l.
93 Barle, 'The United States' Foreign Corrupt Practices Act', above nIl, 225-6.
94 Salbu, above n 25, 233.
95 Brademas and Heimann, above n 2, 20.
96 Transparency International, Mission Statement (1997) <http://www.transparency.org/mission
.html> at 1 August 2000 (copy on file with author).
2000] Corruption and Competitiveness in Global Business 365

to the task ofraising awareness about corruption. Central to its operations is the
network of National Chapters which it has established around the world. At
present there are over 75, from Argentina to Zimbabwe, with many more in the
process of formation. These National Chapters bring together coalitions of
people with integrity and a commitment to fighting against corruption in
government, business and civil society.97
Transparency International does not adopt an investigative, journalistic ap-
proach to its work whereby individual cases of corruption are exposed. Rather,
its focus is on prevention and reforming systems. 98 Adhering to strict princi-
ples,99 Transparency International assists its National Chapters to design and
implement effective integrity systems. The collection, analysis and dissemination
of information about corruption are also key elements of the activities of the
organisation.
Transparency International also publishes a National Integrity Source Book,lOO
which contains examples of best practice and practical steps for achieving it.
Although the organisation's objective of curbing corruption is not restricted to
global business, it has been working closely with business to develop 'Islands of
Integrity' under which companies and countries pledge not to engage in corrup-
tion in their business dealings. IOI In April 2000 it was announced that Transpar-
ency International would work with Australian companies to conduct 'business
integrity audits'. The aim of the independent audits is to ascertain that employees
have not engaged in corrupt practices in their attempts to win international
business.102 In the same vein a pilot project, the National Integrity Systems
Audit, is to be developed to subject government institutions to transparency and
accountability procedures. It will be tested first in Queensland. 103
As discussed in the last part of this article,l04 Transparency International has
also been working closely with key international economic institutions such as
the World Bank and the IMF. However, Transparency International has perhaps
become famous around the world through its publication of two corruption
97 Transparency International, National Chapters and Contacts (2000)<http://www.transparency
.org/organisation/chapters!> at 1 August 2000 (copy on file with author).
98 Such as government and administrative machinery.
99 The principles are:
• TI recognises the shared responsibility of actors in all regions for conuption, and its empba·
sis is on prevention and on refonning systems, not on exposing individual cases;
• TI considers that the movement against corruption is global and transcends social, political,
economic and cultural systems;
• Internally, TI observes the principles of participation, decentralisation, diversity, account-
ability and transparency;
• TI is politically non-partisan; and
• TI recognises that there are strong practical as well as ethical reasons for containing corrup-
tion.
Transparency International, Mission Statement, above n 96.
100 Jeremy Pope (ed), National Integrity Systems: The TI Source Book (1996).
101 Ecuador was used as a testing laboratory for the concept: see Earle, 'The United States' Foreign
Corrupt Practices Act', above nIl, 232.
102 Stephen Dabkrowski, 'Australian Companies to Help Battle Bribery', The West Australian
(Perth), 13 April 2000, 45.
103 Ibid.
104 See below Part IV(E).
366 Melbourne University Law Review [Vo124

indices: the Bribe Payers Index, which relates to leading exporters who pay
bribes; and the Corruption Perceptions Index, which relates to the perceptions of
the degree of corruption in a country as seen by business people, risk analysts
and members of the general public. 105 Of particular interest, they show the
countries considered most corrupt when it comes to doing business. The latest
Corruption Perceptions Index has Azerbaijan, Indonesia, Nigeria and Cameroon
at the very bottom of the ladder, signifying that these countries are perceived as
the most corrupt. 106 The publication of the indices has had a huge impact. 107

C Multilateral Efforts at Combating Corruption


The year 1996 marked a watershed in the fight against corruption in global
business. The Organisation of American States ('OAS') made the first multilat-
eral move to tackle corruption in its hemisphere. On 29 March 1996, 21 mem-
bers of the OAS signed the Inter-American Convention against Corruption at
Caracas, Venezuela. 108 The preamble states that the signatories are 'convinced
that corruption undermines the legitimacy of public institutions and strikes at
society, moral order and justice, as well as at the comprehensive development of
peoples'.
The Inter-American Convention has twin purposes. Firstly, it aims to promote
and strengthen the development of mechanisms for the prevention, detection and
eradication of corruption. Secondly, it aims to promote and facilitate co-
operation amongst the signatories for the purpose of ensuring that effective
measures are in place to achieve the overall aim of eradicating corruption' in the
Americas. 109 The Inter-American Convention places a duty on signatories to
criminalise both domestic and transnational briberyllO The former duty covers
both the giver and recipient of a bribe, whereas the latter duty targets the giver
alone. In addition, signatories have a duty to criminalise illicit enrichment;
however, this applies only to the recipient. 11l Illicit enrichment is defined as a

105 Transparency International. 1999 Bribe Payers Index; 1999 Corroption Perceptions Index
(1999) <http://www.transparency.orgldocumentslcpiJindex.html>at I August 2000 (copy on file
with author). Earlier versions of the Indexes can be found at the Internet Centre for Corruption
Research. Gottingen University <http://www.gwdg.de/-uwvwl>.
106 Transparency International, J999 Bribe Payers Index; 1999 Corruption· Perceptions Index,
above n 105.
107 Transparency International, Annual Report 1999 (1999) 12; available at
<http://www.transparency.orgldocumentslannual-reportlar_99/pages/contents.htm> at I August
2000 (copy on file with author).
108 Opened for signature 29 March 1996, KAV Series 5209, 35 ILM 724 (entered into force
6 March 1997) (,Inter-American Convention'). In the previous year the Secretary-General of the
OAS, Cesar Gavaria, had signalled the tough stand against corruption'when he stated in his 1995
document, 'A New Vision of the Organisation of American States': '[C]orruption is a problem
that seriously affects the legitimacy of democracy, distorts the economic system, and contributes
to social disintegration': cited in Zagaris and Ohri, above n 42, 55.
109 Inter-American Convention, above n 108, art 2.
110 Ibid arts 7 and 8.
III !bid art 9.
2000] Corruption and Competitiveness in Global Business 367

significant increase in the assets of a government official which he or she cannot


reasonably explain in relation to his or her lawful eamings.112
Implementation of the Inter-American Convention has been slow due to lack of
resources and the foot-dragging of some of the signatories. ll3 Nevertheless, there
is little doubt that the adoption of the Inter-American Convention is an important
milestone in the campaign against corruption in global business.
The second important development to take place in 1996 was the recommen-
dation issued by the Council of the OECD on 11 April, asking members who still
allowed the tax deductibility of bribes to foreign public officials to re-examine
the practice with a view to abandoning it. ll4 Although the recommendation was
not binding, it represented a significant development because, as has already
been seen, allowing the tax deductibility of bribes served as an incentive to
bribe-givers, who invariably came from the industrialised countries. The effect
of the practice was that it increased the cost of global business transactions;
however, it also made the developed countries vulnerable to attacks of moral
hypocrisy in their attempts to raise awareness of corruption.
The third major development in 1996 occurred within the United Nations. On
16 December the General Assembly passed two resolutions on corruption.
Resolution 51/59 115 dealt with action to be taken against corruption and con-
tained an International Code of Conduct for Public Officials. 11 6 Resolution
5l1l9l 117 contained the United Nations Declaration against Corruption and
Bribery in International Commercial Transactions. lls It recognised that
effective efforts at all levels to combat and avoid corruption and bribery in all
countries are essential elements of an improved international business envi-
ronment, that they enhance fairness and competitiveness in international com-
mercial transactions and form a critical part of promoting transparent and ac-
countable governance, economic and social development and environmental
protection in all countries, and that such efforts are especially pressing in the
increasingly competitive globalized international economy. 119
The Declaration called on all UN members to take concrete steps to combat
corruption in all its forms. Specifically, the UN called on its members to enact
legislation to make the bribery of foreign public officials illegal and to end the

112 Ibid. For comments, see Zagaris and Ohri, above n 42, 56-7. See also Pierros and Hudson,
above n 23, 86.
113 Zagaris and Ohri, above n 42, 63.
114 OECD, Recommendation of the Council on the Tax Deductibility of Bribes to Foreign Public
Officials C(96)27IFINAL (1996); 35 ILM 13 I I. It should be noted that the QECD flISl put
corruption on the agenda in 1989. Later, the OECD set itself two objectives: firstly, to fight
corruption in global business and, secondly, to help level the playing field for all companies to
compete. See OEeD Anti-Corruption Unit, About Us (2000) OEeD
<http://www.oecd.orgldaf/nocorruptionJaboutus.htm> at 1 August 2000 (copy on file with
author).
115 Action against Corruption, GA Res 51159, 51 UN GAOR (82"" plen mtg), UN Doc AlRes/51159
(1997); 36 ILM 1039.
116 Ibid Annex; 1041.
117 Declaration against Corrup'tion and Bribery in International Commercial Transactions, GA Res
51/191.51 UN GAOR (86 th pIen mtg), UN Doc NRes/51/191 (1997); 36 ILM 1043.
118 lbid Annex; 1046 ('Declaration').
119 lbid Preamble to the Declaration.
368 Melbourne University Law Review [Vo124

tax deductibility of bribes. The Declaration also called for tnmsparency in


international commercial transactions through the development of accounting
standards and business codes. Although the resolutions are not binding on
members, the fact that they were adopted without a vote shows clearly the
general consensus in the UN on the matter and the resolve of countries to take
concrete action to combat corruption. 120
Perhaps the most significant step in the efforts to combat corruption in global
business was taken on 17 December 1997 in Paris, when members of the OECD
signed the Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions I21 In addition to the 29 OECD members
who signed the OECD Convention, five non-members have signed: Argentina,
Brazil, Bulgaria, Chile and the Slovak Republic. The OECD Convention carne
into effect on 15 February 1999. The significance of the signing of the OECD
Convention is obvious. Since the OECD members comprise the leading trading
nations of the world, it is from these countries that the transnational corporations
which pay the bulk of the bribes in global business emanate. Getting them to
agree to the making of the OECD Convention was therefore a significant
achievement. Specifically in relation to the Americas, the making of the OECD
Convention is seen as giving a boost to the implementation of the Inter-American
Convention. Since the US, Canada, Mexico, Chile, Argentina and Brazil are
signatories to both conventions, it is believed that their actions in implementing
the OECD Convention will have a beneficial influence on the implementation
process of the Inter-American Convention. I22
Signatories to the OECD Convention have undertaken to enact legislation in
their countries to criminalise the bribing offoreign public officials in relation to
the performance of their duties.123 Article I (I) of the Convention states:
Each Party shall take such measures as may be necessary to establish that it is a
criminal offence under its law for any person intentionally to offer, promise or
give any undue pecuniary or other advantage, whether directly or through in-
termediaries, to a foreign public official, for that official or for a third party, in
order that the official act or refrain from acting in relation to the performance of
official duties, in order to obtain or retain business or other improper advantage
in the conduct of international business.
The OECD Convention targets the 'supply side' of bribery. The aim is to stamp
out 'active corruption' rather than 'passive corruption' and so the target is the
120 It should be .pointed out that the UN had made some previous attempts to address the issue. but
had experienced little success due to a lack of support. See, eg, Measures against Corrupt Prac-
tices of Transnational and Other Corporations, Their Intennediaries and Others Involved, GA
Res 3514 (XXX), 31 UN GAOR (2441" plen mtg), UN Doe A/Res/3514 (XXX) (1976); 151LM
180; and Outstanding Issues in the Draft Code of Conduct on Transnational Corporations:
Report ofthe Secretariat, UN Doe EtC.I Oil 984/S/5 (1984); 23 ILM 602.
121 Opened for signature 17 December 1997, [1999] ATS No 21, 37 ILM 1 (entered into force 15
February 1999) (,OECD Convention'), Earlier, on 23 May 1997, the OECD had revised its 1994
Recommendation of the Council of the OECD on Bribery in International Business Transac~
tions, above n 91: see OECD, Revised Recommendation of the Council on Combating Bn'bery in
International Business Transactions C(97) 123IFINAL (1997); 36 ILM 1016,
122 Zagaris and Ohri, above n 42, 63,
123 For an analysis of the OECD Convention, see Zedalis, above n 33; Qayyum, above n 90; Pierros
and Hudson, above n 23, 92-9,
2000] Corruption and Competitiveness in Global Business 369

person or entity giving the bribe, or promising to do so, rather than the. person
receiving it. 124 This is logical given that the OECD members are the largest
exporters of global trade and investment and, as it has already been suggested,
the bulk of the bribery money comes from them. Moreover, the OECD Conven-
tion targets 'grand corruption' rather than 'petty corruption'. To this end, the
OECD Convention follows the lead of the FCPA in exempting small 'facilitation'
or 'grease' payments from its scope. The OECD Convention also provides for
co-operation and mutual assistance between signatories in investigations and
prosecution of offenders. This extends to the extradition of offenders. 12' An
important element of the OECD Convention is the provision for co-operation in
monitoring the full implementation of the OECD Convention. 126 Although it is
acknowledged that the successful implementation of the OECD Convention will
not be easy,127 considerable progress has been made within a relatively short
period of time and all the indicators point to its successful implementation in the
future.

D Australia s Implementation oJ the OECD Convention


Of the 34 signatories to the OECD Convention, 22 countries had implemented
it into their domestic laws by 31 August 2000: Australia, Austria, Belgium,
Bulgaria, Canada, Czech Republic, Finland, France, Germany, Greece, Hungary,
Iceland, Japan, Korea, Mexico, Norway, Slovak Republic, Spain, Sweden,
Switzerland, the United Kingdom and the US.128 The OECD Convention does
not stipulate that countries adopt a specific legislative model. Rather, each
country has been left with the discretion to 'take such measures as may be
necessary' to implement the terms of the OECD Convention. However, Austra-
lia's approach can be taken to be fairly representative.
On 7 December 1998 Australia signed the OECD Convention. On
31 March 1999 Australia implemented the 1996 OECD recommendation against
allowing the tax deductibility of bribes to foreign officials as business expenses.
On that day the Taxation Laws Amendment Act (No 3) 1999 (Cth) received royal
assent to become effective from I July 1999. Prior to that time Australia, like
most of the developed world, allowed bribes paid by its companies in the course
of their international operations to be claimed against tax payable as business
expenses. In passing, the observation may be made that it is surprising that it
took Australia some three years to implement that recommendation.

124 See OECD Anti-Corruption Unit, 'Conunentaries on the Convention on Combating Bribery of
Officials in International Business Transactions' (1998) 37 International Legal Maten"als 8, 8.
125 OEeD Convention, aboven 121, arts 9,10.
126 Ibid art 12. The monitoring process began in April 1999 with Germany. Norway and the US.
127 Laurence Cockcroft, Implementation of the OEeD Convention: The Conditions for Success
(I 999) Transparency International <http://www.transparency.orgldocuments/workpapers/
Ic_oecd.html> at 1 August 2000 (copy on file with author).
128 See OECD Anti-Corruption Unit, Steps Taken and Planned Future Actions by Each Participat-
ing Country to Ratify and Implement the Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions (2000) OECD
<http://www.oecd.orgldafinocorruptionlannex2.htm> at 31 August 2000 (copy on file with
author). As at 31 August 2000 Brazil and Turkey had ratified the OEeD Convention, but were
yet to adopt implementing legislation.
370 Melbourne University Law Review [Vo124

Australia chose to implement the OECD Convention not by -way of a new


piece of legislation, but rather by way of an amendment to the federal Criminal
Code. The Criminal Code (Bribery of Foreign Public Officials) Bill 1999 (Cth)
was introduced into Federal Parliament on 10 March 1999. In his second reading
speech the federal Attorney-General stated:
It is important that Australia should support the OECD's initiative to combat
the bribery of foreign public officials and take a principled stand against cor-
ruption. While I am sure we would all agree it will not completely solve the
problem of corruption, implementation of the convention will reduce it and
provide a strong statement about Australia's values and our confidence in the
soundness of those values.

There is good business sense, as much as morality, in introducing this legisla-


tion. Bribery distorts attempts at international competitive bidding, bribes
themselves are non-productive and are therefore paid from profits and bribes
distort trade in that contracts are not based on merit and can lead to production
of poor quality goods and services. In the aid context, bribery can lead to a very
poor selection of projects, and this can in turn lead to diversion of resources
away from areas of greatest need. 129
The Criminal Code Amendment (Bribery of Foreign Public Officials) Act 1999
(Cth) received royal assent on 17 June 1999. It came into force on
18 December 1999, at the same time as Australia's ratification of the OECD
Convention became effective. The Act amended the federal Criminal Code Act
1995 (Cth) by adding Chapter 4, entitled 'The Integrity and Security of the
International Community and Foreign Governments'. Section 70.2 creates a new
offence of bribing a foreign public official. According to s 70.2(1), it is an
offence to provide, offer to provide or arrange for a benefit to be offered to a
person if the benefit is not legitimately due to that person and the offer is made
to influence a foreign public official to obtain or retain business or grant to the
bribe giver a business advantage. I3O The offence carries a maximum of 10 years
imprisonment. 131
Section 70.3 contains a defence. This applies where the alleged conduct is
sanctioned by the law in the foreign public official's country. There is also a
defence against a charge for facilitation payments made for a routine government
action. This defence, contained in s 70.4, applies only if the value of the benefit
was of a minor nature and 'the person's conduct was engaged in for the sole or
dominant purpose of expediting or securing the performance of a routine
government action of a minor nature'. Furthermore, a record must be made of the
payment as soon as practicable thereafter and the record must be kept. 132

129 Commonwealth, Parliamentary Debates, House of Representatives, 3 June 1999, 6044 (Daryl
Williams, Attorney-General).
130 The tenus 'benefit', 'business advantage', <foreign public official' and other tenns are defined in
s 70.1. For example, the term 'benefit' is defmed to include 'any advantage and is not limited to
property'.
I3l By virtue ofs 48 of the Crimes Act 1914 (Cth), a court may impose a fine instead of imprison-
ment or in addition to it.
132 Section 70.4(3) sets out the required content of the record.
2000] Corruption and Competitiveness in Global Business 371

As can be seen, the facilitation payments defence is based on the FCPA. As the
aim of the OECD Convention, and therefore the Australian legislation, is to
arrest grand corruption, it is understandable that it provides a defence for
facilitation or grease payments; however, this is also a realistic recognition of the
fact that payment of foreign public officials in order to secure routine govern-
ment performance is entrenched in many developing countries. I33 Whilst it may
be illegal in most countries, the reality is that refusal to make such a payment can
result in some detriment to one's business. For example, where goods need
clearance from customs and undue delay could harm one's business, it is not
hard to find justification for making the payment. An even clearer situation is
where the goods in customs are perishable.
The OEC!)' €onvention and the Australian legislation (like the FCPA) recog-
nise that it would be unrealistic totally to ban facilitation or grease payments. It
would be far better to have a provision that is workable and can be enforced,
rather than have one which looks good on the statute books but is totally
unenforceable. The Australian legislature has chosen the former. By limiting the
defence in s 70.4 to benefits of a minor nature made for the purposes of securing
routine government action of a minor nature, and by having further stringent
record-keeping requirements, the potential for abusing the use of facilitation
payments is significantly reduced. Having said that, there could still be difficul-
ties in some cases. An interesting example is where an Australian company pays
a foreign government official A$IO 000 in order to accept its tender for a major
development project worth over A$IOO million. The payment is being made
because the Australian company is late in the submission of its bid (in the last
days before the deadline) and wants to ensure that its application is actually
processed. It should be stressed that the foreign official is not being asked to do
anything other than ensure that the application is duly accepted and included
with the others. Will this be an acceptable facilitation payment? The amount of
A$IO 000 by itself is not of a minor nature but, in the context of the
A$I 00 million, perhaps it is not that huge after all. There is no easy answer to
this problem and surely the courts will have the opportunity in due course to set
some guidelines.
Finally, the legislation finds jurisdiction on the basis of nationality and place of
incorporation, but not on the basis of residency or business operations where the
conduct occurs outside Australia. l34 Thus, the legislation will apply to conduct
which occurs wholly or partly within Australia or wholly or partly on board an
Australian aircraft or ship. Where the conduct occurs wholly outside Australia,
prosecutions may be brought only against Australian citizens or bodies corporate
that have been incorporated in Australia. In the case of Australian residents who

133 The point has already been made that this is one of the benign effects of corruption, as such
payments supplement the income of government officials in poor countries: see above on 42-44
and accompanying text.
134 OEeD Convention, above n 121, art 4 allows for different approaches to the issue of extraterrito-
riality. The Canadian courts are likely to adopt the 'real and substantial connection' approach for
corrupt practices which occur overseas: see Simon Chester and David Selley, 'Giving Kickbacks
the Boot' (1999) 132 CA Magazine 20, 22. The civil code countries, however, are likely to base
jurisdiction on nationality in accordance with existing practice: Cockcroft. above n 127.
372 Melbourne University Law Review [Vo124

are not citizens, the written consent of the federal Attorney-General is required
before a prosecution may be instituted. m Australia adopted this approach
because it is of the view that foreign countries should bear the responsibility for
the actions of their citizens and businesses for any corrupt conduct which takes
place outside Australia. B6

E Other International Efforts


In addition to the efforts already discussed, many other organisations are
working hard in their own spheres to contribute to the global effort to combat
corruption. Only some key contributions are noted here.
As was stated earlier,137 until recently such venerable international financial
organisations as the World Bank and the IMF ignored the issue of corruption in
global business. To them it was seen as a political issue which fell outside the
scope of their operations. In the words of James Wolfensohn, President of the
World Bank, 'corruption was seen as a political not an economic issue - off
limits to all but political organizations.' 138
Today, the winds of change are blowing across these same organisations. They
are at the forefront in the fight against corruption. The World Bank began to
change its position in 1995 with the appointtnent of James Wolfensohn as
President. He made fighting corruption his top priority in 1996 when he declared
'corruption an intolerable cancer' .139 The following year he invited Transparency
International to assist the World Bank in developing a comprehensive program to
combat corruption. 140 The World Bank has since put in place a number of
policies to ensure transparency and to fight corruption. 141 For example, the
World Bank now aims to ensure integrity in the projects it funds by insisting on
proper financial management and internal controls from the design stage of the
project through to its implementation. Another initiative of the World Bank is to
provide assistance to countries in their anti-corruption drives. This includes
assistance with reforming public sector institutions, such as tax and customs
administration, government procurement and auditing arrangements. An amount
ofUS$5 billion has been earmarked by the Bank specifically for this initiative. 14'

135 Criminal Code Amendment (Bribery o/Foreign Public Officials) Act 1999 (Cth) s 70.5.
136 The Commonwealth Government's response to the recommendations of the Joint Standing
Committee on Treaties is summarised in Bills Digest No 176 1998-99: Criminal Code (Bribery
of Foreign Public Officials) Bill 1999 (1999) Parliament of Australia
<http://www.aph.gov.auJIibraryfpubslbdl1998-99f99bd176.htm> at I August 2000, [9]-[24]
(copy on file with author).
137 See above n 21 and accompanying text.
138 Wolfensohn, above n 21,1.
139 Cited in Paul Sweeney. 'The World Bank Battles the Cancer of Corruption' (1999) 13 Global
Finance 110, [5].
140 Brademas and Heimann, above n 2, 20; Rose-Ackennan, 'The Role of the World Bank', above
n 21, 93; Sweeney, above n 139.
141 Wolfensohn, above n 21,1-2.
142 Sweeney, above n 139, [13].
2000] Corruption and Competitiveness in Global Business 373

Further, the World Bank now has stringent new guidelines on procurement. 143
A new anti-corruption clause requires 'Borrowers ... as well as bidders/Suppl-
iers/Contractors under Bank-financed contracts, [to] observe the highest standard
of ethics during the procurement and execution of such contracts.' 144 Unan-
nounced audits are carried out on projects and if evidence of corruption is found,
the World Bank may suspend the loan facility or cancel the project altogether.
Under this policy the Bank may also ban firms that are found to be corrupt from
future tendering of its projects. 14 ' To boost the World Bank's policies further,
Transparency International has been urging potential bidders of World Bank
contracts to sign an 'Integrity Pact' under which they pledge to refrain from
engaging in corrupt practices. 146
The World Bank is already demonstrating that it is not engaging in empty
rhetoric, but rather that it is very serious about fighting corruption in its opera-
tions. In 1999 two companies, Case Technology, based in the United Kingdom
and Nepostel, based in the Netherlands, which were bidding for a telecommuni-
cations network for the Central Bank of Turkmenistan, were removed from the
World Bank's consultancy list. 147 However, when it comes to countries which are
experiencing severe financial problems, the World Bank has been careful not to
take action that might result in economic chaos in the country. For example,
when it came to light that World Bank funds given to Indonesia had been
diverted to Bank Bali, the World Bank issued strong warnings to Indonesia rather
than cutting off funding altogether. Similar action has been taken in respect of
Russia, where corruption is endemic. 148
The World Bank's sister organisation, the IMF, has adopted a similar ap-
proach. 149 In 1997 the IMF implemented 'The Role of the IMF in Governance
Issues - Guidance Note' .150 The gnidelines adopt 'a more proactive approach in
advocating policies and the development of institutions and administrative
systems that aim to eliminate the opportunity for rent-seeking, corruption, and
fraudulent activity'.151 The IMF adopted a Code of Good Practices on Fiscal
Transparency - Declaration on Principles on 16 April 1998. 152 It is the belief of
the IMF that '[f]iscal transparency would make a major contribution to the cause
of good governance.'I'3 A number of developing countries, including Kenya,

143 World Bank. Guidelines: Procurement under IBRD and IDA Credits (5 th rev ed, 1999) World
Bank Group <http://www.worldbank.orglhtml/opr/procure/procguid-ev3.doc> at 1 August 2000
(copy on file with author) cl 1.15.
144 Ibid; see also O'Keefe. above n 50, 26.
145 Zagaris and Ohri, above n 42, 78-81; Qayyum, above n 90, 28.
146 Rose-Ackerrnan, 'The Role of the World Bank', above n 21,104.
147 Sweeney, above n 139, [13].
148 Ibid [14].
149 Tanzi, above n 3, 576; Brademas and Heimann, above n 2, 20; Pierros and Hudson, above n 23,
99-101.
150 IMF, IMF Adopts Guidelines Regarding Governance Issues, News Brief, No 97115 (4 August
1997) <http://www.imf.org/extemaVnp/seclnb/1997/nb9715.htm> at 1 August 2000 (copy on
file with author) Annex.
151 Zagaris and Ohri, above n 42, 82.
152 IMF, Code of Good Practices on Fiscal Transparency - Declaration on Principles (1998). The
Code is reproduced at (1998) 37 ILM 942.
153 [bid Preamble.
374 Melbourne University Law Review [Vo124

have had their assistance suspended by the IMF because of '-concerns over
corruption l54 When the IMF bailed out South Korea and Indonesia in 1997 and
1998 respectively, the IMF imposed the conditions that these countries restruc-
ture their economies and aim for greater transparency in their business transac-
tions. 155 The IMF demonstrated its seriousness to Jakarta in April 2000 when it
denied Indonesia some US$660 million in soft loans until the country makes
progress against corruption. As a result, Indonesia has decided to step up its
efforts to combat corruption and, among other things, it plans to set up a special
investigation team to tackle corruption at senior levels in the government, civil
service and the judiciary. It also plans to import judges on an ad hoc basis from
the Netherlands. 156
Other organisations are also playing important roles in raising awareness of
corruption in global business and in helping to develop strategies to combat it.
For example, the International Chamber of Commerce in Paris has been pro-
moting transparency in global business to international organisations, govern-
ments and corporations. In 1996 it revised its Rules of Conduct on Extortion and
Bribery in International Business Transactions, totally prohibiting extortion and
bribery in global business. IS7

V THE DELICATE MATTER OF GIFT-GIVING


Gift-giving is an entrenched part of some cultures and comes in a variety of
forms. In some societies a gift is given almost as a matter of course in apprecia-
tion for some act done. Gifts may also be given at certsin times of the year, such
as national festivals or similar important occasions. Whereas in the former case
the gift is given ex post facto and as a direct consequence of an act performed, in
the latter case the gift is given without reference to any particular act
The question raised by gift-giving in the context of combating corruption in
global business is: Where does one draw the line? Does the mere giving of a gift
encourage corruption? What about gifts given in response to some previous act
or service rendered? Can it lead to corruption? Then there is the more difficult
question of the quantum of the gift. Is a large gift given on the occasion of a
national festival just a gift? Or does it suggest that some future reciprocity would
be expected? These are some of the many questions which arise in this area.
In 1996 the Thai Deputy Minister of the Interior reportedly called publicly on
his staff to accept any money offered to them because '[tJhis is part of traditional
Thai culture' .158 A statement such as this is open to a variety of interpretations.
There are some who would read the statement as indicating nothing more than
that there exists a customary practice of gift-giving in Thailand. On the other

154 Hotchkiss, above n 30, 113.


155 Parker, above n 2, 441.
156 Tim Dodd. 'IMF Loan Delay Prompts Jakarta Corruption Effort', The Australian Financial
Review (Sydney), 4 April 2000, 12.
157 International Chamber of Commerce, Extortion and Bribery in International Business
Transactions: 1996 Revisions to the ICe Rules afConduct (1996). The Revisions are reproduced
at (1996) 35 ILM 1306.
158 HOIChkiss, above n 30, 113.
2000] Corruption and Competitiveness in Global Business 375

hand, there are those who might interpret the statement as encouraging the
acceptance of bribes. Even for those who accept the first interpretation, the
question which arises is when does legitimate, customary gift-giving end and
how does one tell when the gift-giving has gone beyond the legitimate?
Because gift-giving is an entrenched practice in some societies, this has been
interpreted to mean that those societies are corrupt. For example, the Chinese
have been accused of being 'promiscuously corrupt in their business practices'
because of the culture of gift_giving159 Whilst it is acknowledged that corruption
is endemic in China, it has been forcefully argued that gift-giving is not to blame
because it is only part of a big picture of guanxi ('belonging to a network of
relationships').160 One commentator explains as follows:
For Chinese, gift giving is a natural dynamic of any relationship: it shows a re·
lationship is valued and is a means of expressing respect and honor for the
other person. Gifts express good will and gratitude and, in many ways, can be
considered a dynamic fonn of 'social contracting. -161
In Africa, where the culture of gift-giving has also been blamed for corruption,
this type of argument has been refuted strongly. General Olesegun Obasanjo,
currently President of Nigeria, makes the following powerful argument:
I shudder at how an integral aspect of our culture could be taken as the basis for
rationalizing otherwise despicable behavior. In the African concept of appre-
ciation and hospitality, the gift is usually a token. It is not demanded. The value
is usually in the spirit rather than in the material worth. It is usually done in the
open, and never in secret. Where it is excessive, it becomes an embarrassment
and it is returned. If anything, corruption has perverted and destroyed this as-
pect of our culture. 162
However, there is no doubt that the well-meaning practice of gift-giving can be
abused by corrupt minds. The best evidence of this can be found in South Korea.
The gift-giving practice of ttokkap (,rice-cake expenses') has ancient origins but
has come to be associated with Korean Thanksgiving and New Year's Day.
Ttokkap is meant to be given as a token gift, as a sigu of hospitality and grati-
tude. It has equivalents in many Asian countries. 163 However, former Presidents
Chun 000 Hwan and Roh Tae Woo were found to have received ttokkap from
over a dozen chaebol (,Korean business conglomerates') heads over several
years ranging from US$5 million to US$I8.8 million each. Over the period the
payments amounted to US$638 million between the two presidents. The Korean
courts developed a comprehensive bribe theory and came to the conclusion that
the payments received by these ex-presidents went well beyond the accepted
limits ofthe customary practice and therefore amounted to bribery.l64

159 P Steidlmeier, 'Gift Giving, Bribery and Corruption: Ethical Management of Business
Relationships in China' (1999) 20 Journal a/Business Ethics 121, 121.
160 Ibid 122.
161 Ibid 124.
162 Hotchkiss, above n 30,113-14.
163 Kim and Kim, above n 59, 561-2.
164 Ibid 567-9.
376 Melbourne University Law Review [Vo124

What the Korean case in particular demonstrates is that it is essential to make a


distinction between gift-giving, which is culturally acceptable and which is not
made to influence a business decision whether immediately or in the future, and
a 'gift' which is a disguised form of bribery. Some people have argued that
because gift-giving is entrenched in many cultures and because it is often
difficult to distinguish between legitimate and illegitimate gift-giving, it is not
worth attempting to criminalise corrupt practices in such societies. For example,
it has been contended that
a broad spectrum of gifts and social favors, ranging from lavish offerings to
routine hospitality, can be traded with a wide variety of motives, so complicat-
ing the task of winnowing the innocent from the corrupt as to render the effort
futile l65
Whilst it may be difficult for an outsider to distinguish between gift-giving
which falls within socially acceptable parameters and that which does not, for
those familiar with the culture this may not be difficult at all. The particular
culture may have its own norms to regulate the boundaries of social behaviour,
including the practice of gift-giving. Indeed, as the argument by President
Obasanjo indicates, African culture eschews 'excessive' gift-giving.l66 Similarly,
it has been pointed out that within Chinese culture there are 'moral parameters to
distinguish morally proper gift giving from bribery and corruption' .167 The
Korean case perhaps also demonstrates that people who are familiar with the
culture in which they are dealing can tell the difference between what is cultur-
ally acceptable and what is not. Therefore, any difficulty likely to be faced by a
foreigner can hardly be a justification for not enacting legislation to curb
unlawful activities. 168
In this context, reference should be made to s 70.2(1) of the Criminal Code
Amendment (Bribery ofForeign Public Officials) Act 1999 (Cth), which makes it
illegal to bribe a foreign public official. Sub-sections (2) and (3) state that in
working out if a benefit or a business advantage 'is not legitimately due' to a
person in a particular situation, the following are to be disregarded:
• the fact that the benefit may be customary, or perceived to be customary;
• the value <if the benefit or business advantage;
• any official tolerance of the benefit or business advantage.
This means that a person or body corporate charged with committing an of-
fence of bribing a foreign public official cannot use cultural practice as a
defence. It is interesting to contrast this with the facilitation payments defence
contained in s 70.4, which is silent on the matter. Consequently, if any use can be
made at all of cultural practice as a defence, it is probably in the context of
facilitation payments. The difference in approach of the legislature reflects the
seriousness with which bribing a foreign public official to gain some business
advantage or benefit is viewed. All the same, one has to be careful not to confuse

165 Salbu, above n 25, 278.


166 See above n 162 and accompanying text.
167 Steidlmeier, above n 159, 12l.
168 CfNichois, above n 12,295.
2000] Corruption and Competitiveness in Global Business 377

a practice that has developed in the public sector over time with a practice that is
actually sanctioned by a culture. The two are not necessarily synonymous.

VI CONCLUSION
Corruption in global business has existed for a very long time, perhaps as long
as there has been trade between nations. Until the mid-1990s the issue was
virtually ignored in international business discourse. In fact, there were those
who endorsed corruption in global business because in certain countries it was an
effective way of overcoming obstacles to business transactions. For over 20
years the US fought single-handedly to get the issue of corruption in global
business onto the international political agenda without any success. However,
its persistence has at last paid off handsomely. Today corruption is very much on
the agenda of all countries. It is being talked about and debated openly. Con-
certed efforts are being made to combat corruption not only by governmental
organisations such as the OECD and the OAS but also by non-governmental
organisations like Transparency International. Economic institutions such as the
World Bank and the IMF are also playing key roles in changing community
attitudes towards corruption in global business.
Although these organisations, and others, are playing important roles in the
fight against corruption, the OECD Convention and the Inter-American Conven-
tion have the most far-reaching scope. Whether the signatories to these conven-
tions will faithfully implement and enforce the terms of the conventions remains
to be seen. Not long ago the efforts of the US were derided as futile because
corruption was so entrenched in global business that some people felt it could
not be changed. Even some of the closest allies of the US turned the other way
when the issue was raised. One commentator has stated it elegantly: 'Conven-
tional wisdom dictated that attempting to change business practices was the
equivalent of Don Quixote tilting at windmills. '169
Today the winds of change are blowing furiously in the other direction. The
mere fact that the two conventions were actually signed is a very important
achievement. The OECD Convention, which is the more significant of the two,
has been receiving steady acceptance. As at 31 August 2000, some 22 countries
had implemented the OECD Convention into their domestic laws."o The
OECD's monitoring procedure is being vigorously applied to ensure that these
countries are abiding by their commitments under the OECD Convention. To
date a number of countries, including Australia, the United Kingdom, Greece,
Hungary, Iceland and Japan have been scrutinised.l7l
The international community as a whole should reap the benefits of transparent
global business transactions as more and more countries take concrete action
against corruption. In the end there will be a level playing field, in which
competitiveness in global business will no longer be based on a willingness to

169 Earie, 'The United States' Foreign Corrupt Practices Act', above n J 1, 209.
170 OEeD Anti-Corruption Unit, Steps Taken and Planned Future Actions, above n 128.
171 Ibid.
378 Melbourne University Law Review [Vo124

engage in corruption to the detriment of those who value integrity and transpar-
ency. It will be an entirely different ball game!