European firms have double standards in foreign dealings

Major European firms are the main culprits of bribery and corruption abroad...

Capital has made the world smaller. Businesses from developed countries enter emerging markets to build scale on a daily basis.

As a result people are wealthier and economies stronger: China, India, Brazil, Russia, Nigeria and most of Latin America are notable examples.

A seedy undercurrent lies beneath this success. Governments are incentivised to open their doors to overseas companies – as if the benefits of free trade are not enough. Public officials are asked to turn a blind eye.

Others are asked to favour a certain contractor for a tender. That undercurrent, of course, is bribery. A few payments made along the way to facilitate business. “Even the slowest of bureaucrats works quickly given a little incentive” says a former business consultant for an oil major.

He also says bribes are a way of life in poorer countries, where they are used to supplement low-incomes. In Latin America, for example, bribery of customs officials is standard practice among domestic companies.

Customs officials in the region are poorly paid and encouraged to take bribes to do their jobs efficiently. It is, some say, akin to tipping waiters in the west.

This laissez-faire attitude has contributed to the perpetuation of corruption among big European companies, which display double standards when operating in developing nations.

As Transparency International’s 2007 Corruption Perceptions Index puts it, “Bribe money often stems from multinationals based in the world’s richest countries”.

British oil giant BP has recently been named in a multi-million dollar lawsuit involving allegations of bribery of government officials in Kazakhstan. Germany’s Siemens is in big trouble.

The company is being investigated for an estimated €1.3 billion ($2.1 billion) in dubious payments, mostly in bribes to secure business for the company in Vietnam, Thailand, the Arab world and large parts of Africa, Iran and other states.

The Justice Department is investigating allegations that British Aerospace Systems (BAE) paid millions of dollars in the infamous Al-Yamamah arms deal with Saudi Arabia.

In 2007 four subsidiaries of UK oil services firm Vetco International were fined a combined $26 million, the highest FCPA fine paid by a European company

These European culprits may plead ignorance. Most UK-domiciled firms don’t even realise they’re subject to the FCPA. In the UK, for example, 46 per cent of FTSE 350 companies doing business in the US believe they are not subject to the FCPA according to an overseas bribery and corruption survey published by KPMG.

That doesn’t bother the SEC, and anti-bribery combative legislation is increasingly effective. The Foreign Corrupt Practices Act (FCPA), passed in the US during 1977 in the wake of the Watergate scandal, is investigating more cases than ever before.

According to the Securities and Exchange Commission and the Justice Department, which oversees FCPA law, there are currently 50 publicly disclosed FCPA investigations covering 13 European companies.

The DOJ undertook four times as many FCPA prosecutions between 2001 and 2006 than in the preceding five yeas: on average fewer than 10 Foreign Corrupt Practices Act cases were filed prior to 2007. Last year this figure jumped to 38.

Another three new cases were filed in the first quarter of 2008. The UN Convention Against Corruption (UNCAC) was adopted in 2003. The framework has been signed by 140 countries and ratified by 107 governments. This rapid progress has raised hopes that UNCAC could replace the FCPA as the new standard-bearer.

While legislation has become more effectively enforced, more needs to be done. European firms need to account for their actions abroad and realise their actions have consequences for millions of people. Corruption is not just about making money and people skimming large amounts off the top. Corruption and poverty are inextricably intertwined.

According to Transparency International’s 2007 Corruptions Perceptions Index “A strong correlation between corruption and poverty continues to be evident”. Forty percent of countries scoring 3 out of 10, indicating rampant corruption, are classed as low income countries by the World Bank.

When multinationals bribe an official, they reinforce a culture of corruption. And it is poor people that suffer.

Corruption saps the resources of these people by forcing them to pay bribes in exchange for basic services that should be free by law. While this corruption continues poverty cannot be properly combated, and poverty is a manmade disease that plagues more than half the people of the world.