Greasing the wheels of capitalism

BY SEAN HEALY

Put a face to the word “corruption” and who does it look like? The customs agent taking a tenner with your passport? The council official accepting a brown paper bag? The politician banking hefty “campaign contributions”? But why is the face of corruption that of the corrupted, and not that of the corrupter?

Most studies of corruption, and nearly all “good governance” initiatives aimed at stopping it, concentrate on the bribe-takers and ignore the bribe-givers. They don't ask where the money is coming from.

A new report, Exporting Corruption: Privatisation, Multinationals and Bribery, issued in June by the radical British research group CornerHouse, changes that.

“Multinationals, supported by Western governments and their agencies, are engaging in corruption on a vast scale in North and South alike”, it states. “If corruption is growing throughout the world, it is largely a result of the rapid privatisation (and associated practices of contracting-out and concessions) of public enterprises worldwide. This process has been pushed by Western creditors and governments and carried out in such a way as to allow multinational companies to operate with impunity.”

The report also targets the austerity programs, enforced as conditions for further lending by the International Monetary Fund (IMF) and World Bank, as causing and entrenching corruption. It argues that, despite their rhetoric, the industrialised countries are reluctant to implement effective anti-corruption laws.

Standard procedure

Bribery is an inescapable tool of business under capitalism. “Every year, Western businesses pay huge amounts of money in bribes to win friends, influence and contracts”, the report states. “These bribes are conservatively estimated to run to US$80 billion a year -- roughly the amount that the UN believes is needed to eradicate global poverty.”

A 1999 US Commerce Department report estimated that in the preceding five years bribery influenced 294 commercial contracts, worth US$145 billion. The corruption watchdog Transparency International estimates that, each year, 5% of public budgets go astray.

According to the report, the forms of this corporate corruption are “increasingly subtle”, designed to minimise direct liability. They include hiring local negotiating agents for deals, marking up prices, “commissions” and semi-legal fees. Until recently, the bribery of foreign officials was considered legitimate business practice in France, Germany, Britain and other countries and was tax-deductable.

“The single greatest source of corruption in the UK is large public sector contracts and concessions issued to private companies ... UK multinationals routinely pay commissions to gain contracts from other governments”, the report states. The pattern is repeated in many other First and Third World countries.

For example, in 1998 the Pakistani anti-corruption agency investigated 21 Western companies for paying kickbacks to Benazir Bhutto's government for public contracts to provide electricity. That government had signed so many contracts with power companies that Pakistan was contractually bound until 2010 to produce more energy than it could possibly consume.

Six of the companies later confessed to offering bribes. Yet, far from receiving support for its stand from Western governments, Pakistan's anti-corruption agency was warned by the British, US, Japanese and Canadian governments that its investigations would put off other investors. The IMF, meanwhile, made a package of loans conditional on the government dropping the charges against the companies involved.

Offshore accounts

Giving bribes isn't the extent of multinationals' involvement in corruption. “Private banking services and offshore financial centres are the major conduits and repositories for bribes and corrupt gains”, the report states.

“The private banking boom has its origins in the debt crisis and is a major reason for the continued indebtedness of many poor countries”, it notes. “Because of the debt crisis in the late 1980s onwards, Western banks had fewer opportunities to lend to Third World countries and thus started to pursue wealthy individuals in the Third World to encourage them to place their wealth in private bank accounts.

“The result was a revolving door. International loans to developing countries were creamed off by those in power and transferred into banks, ironically often to `private banking' branches of the very same international banks that had issued the international loan in the first place.”

Other funds in private accounts came from loans made by the World Bank and IMF. Zaire's Mobutu, Indonesia's Suharto, the Philippines' Marcos and Russia's Yeltsin all benefited from such largesse, often with the full foreknowledge of the lending agencies.

In 1996, the IMF estimated that US$500 billion -- 2-5% of global gross domestic product -- was laundered through banks' confidential, private accounts every year, especially those based in tax havens like the British Caribbean or countries with tight banking secrecy laws like Switzerland. In 1999, the IMF put the figure at between US$590 billion and $1500 billion.

The prime beneficiaries are the biggest Western banks. The report quotes the Brookings Institute's Raymond Baker that the US “has, according to all credible estimates, become the largest repository of ill-gotten gains in the world”. The giant Swiss and British banks are also big winners, as the practice is “at least as profitable for the banks as for the individuals making the deposits”; the average rate of return for private banking accounts is more than 20%.

A US Senate inquiry in 1999 revealed that the giant Citibank held private accounts for many corrupt Third World leaders. These included Gabonese president Omar Bongo (who transferred US$100 million, allegedly including bribes from French firm Elf-Aquitaine, through his three accounts), Bhutto's husband Asif Ali Zardari ($40 million, including $10 million allegedly from kickbacks on a gold importing contract), the three sons of former Nigerian strongman Sani Abacha ($110 million in accounts, plus $39 million lent to them to deposit in Swiss accounts after the new Nigerian government began investigations) and Raul Salinas, brother of one-time Mexican President Carlos Salinas ($80-$100 million in alleged drug money).

Multilateral complicity

Official World Bank doctrine argues that policies which “increase the competitiveness of the economy”, such as deregulation, privatisation and public service restructuring, “will reduce incentives for corrupt behaviour”. The report proves otherwise: “The empirical evidence, much of it from the World Bank itself, suggests that, far from reducing corruption, such policies, and the manner in which they have been implemented, have in some circumstances increased it”.

In Uganda, often held up by the IMF and World Bank as a model of the success of their policies, the government has set about privatising 142 state-owned enterprises since 1992, the sales of which was expected to net US$500 million. However, by 1998 the process had been halted twice by parliament because of corruption: at the end of that year, the government account set up to hold the proceeds of privatisation was empty.

A World Bank mission to the country admitted “widespread accusations of non-transparency, insider dealings and corruption”. Corruption was uncovered in 12 contracts, but one researcher estimated that 20% of the sales had serious corruption problems.

Simultaneous IMF-imposed public service restructuring hamstrung the ministries' ability to check the deals (the number of public servants was reduced from 320,000 in 1995 to 55,000 in 1997), while cuts in wages increased incentives for officials taking bribes.

When consultants Morgan Grenfell urged against the sale of the Uganda Commercial Bank, the World Bank and IMF insisted the sale go ahead. Sold to a Malaysian engineering consortium linked to the brother of the Ugandan president, the bank had to be re-nationalised in 1998 “after running into trouble giving out millions of dollars worth of dubious loans”.

According to the head of Uganda's privatisation unit, “When [the sale of Uganda Commercial Bank] went bad”, the World Bank “disappeared off the radar screen” and refused to take any responsibility for it.

The report argues that, for all their fine words, neither the multilateral institutions nor the major Western governments are serious about tackling corruption, and that their anti-bribery laws and policies exist largely for public relations reasons. Britain's anti-bribery law, for example, “has never resulted in a single prosecution in the UK for bribery of a foreign public official”, while in the US, “despite provisions for stiffer penalties, only one case a year on average has been prosecuted”.

The much-vaunted International Convention on Combating Bribery, drawn up by the Organisation of Economic Cooperation and Development in 1997, also has significant loopholes, including failing to prohibit the funding of foreign political parties, failing to make parent companies liable for the actions of their subsidiaries or agents and avoiding any specification of penalties or means of enforcing the convention.

The report expresses no illusions that governments and international institutions will crack down on the very multinationals that run them. Instead, it highlights people's resistance to corruption, such as: the Nicaraguan group Citizen Action Against Poverty and Corruption, which is demanding that the president and other officials declare the sources of their incomes; the Uganda Debt Network and the International Anti-Corruption Theatre Movement, which organise public meetings, plays and marches to raise awareness and hold politicians accountable; and the Indian Mazdoor Kissan Shakti Sangathan, which exposes corrupt local officials in Rajastan.

“Fighting corruption is increasingly engaging the energies of civil society groups around the world”, the report concludes. It declares that the need to “mobilise ordinary people”, “push for freedom of information and enable ordinary people to use that information” and “help increase citizen participation in decision-making” are the only effective ways to stop the corrosive power of money on government.