At Large

World of Wheeling and Dealing

Often the only way to do business in developing countries is under the table.

By 2.11.08

Businesses operating abroad, especially in less developed countries, regularly face demands for bribes. American firms are subject to the Foreign Corrupt Practices Act that forbids participating in such activity. It doesn't always work.

Supposedly, the raft of rules emanating from the OECD's 1997 anti-bribery convention (signed by 37 industrialized nations) were to level the playing field. Of course it didn't. A new accord, the United Nations Convention Against Corruption (UNCAC), now has an even broader scope. That, too, will fail.

It is quite unrealistic to think that any set of international rules will block local institutions and individuals from seeking personalized deals in foreign investment and trade. These "additionalities," "advantages," "gifts" -- whatever you wish to call them -- are arranged through various intermediaries: political parties, unions, local financial partners, etc.

It is usually only when a business competitor or political opponent seeks to stop a given project that policing instruments become involved. In the American case, after a warning, effort is initiated by the U.S. Embassy when the action of an American firm is particularly obvious and egregious. Rarely do other nations' diplomatic offices ring the bell on their own nationals' activities.

When the competition among different national entities becomes particularly rough, one embassy or another might "drop a dime" on a rival national company. But diplomatic missions of many nations become actively involved from the start in promoting the specific commercial projects of their own citizens. The U.S. is rarely among them.

A BUSINESS ARRIVING for the first time in most Third World countries will learn soon enough what it will take to further its particular interests. The information, if not already supplied by a friendly local enterprise, will become known soon enough over the first obligatory lunch, dinner, or friendly drink with the appropriate government underling. How much this will be, and how it will be paid -- to an individual, an organization, a Swiss account, etc -- can then be worked out.

More often than not the "dash" or bribe will be stated as a percentage of the gross value of the hoped-for transaction. There was a time in West Africa when a flat 10 percent was "the usual." It's reported to be higher now in some places. Extractive industry development is more complicated and often includes continued payoffs based on production.

Methods of collecting payoffs are often quite imaginative. Government fees and licenses are added on and then that amount is distributed among the worthy. Customs departments are well organized for this. Inflated prices for local services also provide a ready device for payoffs to officials who receive money from the indigenous enterprise. Often to get a project approved in one region, an unrelated investment in another region is required. Rarely are these bribes detected by the international authorities.

Deals with continuing payoffs also have an initial hefty good will payment. As the host governments have become more experienced and sophisticated, the payments for services rendered have become more complex. This might include political pressure by the firm on its own government to give defense assistance and equipment to the host nation.

Military aid programs frequently have civilian investment and trade tie-ins. Naturally the connection between the military and civilian project is a matter of considerable confidentiality. In fact the "arm's length" aspect of the deal is essential.

However, it is clear that countries willing to aid the host country's defense buildup will be looked upon more favorably when their commercial representatives seek trade deals and development contracts.

MANY BUSINESSMEN WILL insist they have been in international trade and investment for many years and never paid a cent for the privilege. To that one can only applaud their good fortune. It is certainly not impossible to do business in the developing world and not have to bribe anyone in coin or kind. But it is far more customary to do so.

For many parts of the world some form of payoff has become an integral part of the political/business process. There is a logic to this to which no region is immune. French, British, American, and Russian business involvement in the United Nations "oil for food" scandal well proved that. There is no monopoly on corruption.

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About the Author
George H. Wittman writes a weekly column on international affairs for The American Spectator online. He was the founding chairman of the National Institute for Public Policy.