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January 2006
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Daily Media Quotation

The Costs Of Corruption

January 23, 2006

by Paul Barratt - The Age

The Cole Inquiry into whether AWB Ltd or any of its officers may have breached Australian law in the course of doing business under the UN oil-for-food program has raised anew the question of whether bribing foreign officials is no more than a reality of doing business in certain parts of the world part of the rules of the game.

The first point to be recognised by anyone contemplating operations in a corrupt business environment is that, since 1999, offering inducements to foreign officials in the exercise of their duties has been an offence against Australian criminal law, carrying a maximum penalty of a $66,000 fine or 10 years' imprisonment or both. Where a corporation is involved, the fine can be as high as $330,000.

It is usually an offence against the domestic law of the target market as well, potentially involving long prison terms in some very unpleasant jails.

Corruption has been around since business began, but the issue of bribing foreign public officials developed a head of steam following the Lockheed bribery scandal in Japan, which came to light in 1976 and led to the downfall of prime minister Kakuei Tanaka.

The United States passed the Foreign Corrupt Practices Act in 1977 and brought the matter into the OECD. This led by 1997 to an OECD Convention on Bribery of Foreign Public Officials, and legislation to enshrine the convention in domestic law has been enacted or is under way in more than 30 countries representing more than 90 per cent of international trade.

Some will no doubt argue that reliance on this new body of law is all impossibly naive that out there in the hard, cruel, real world, shrewd operators know that certain things have to be done to get the business done.

My first response to this line of argument would be to inquire what other criminal acts you would be prepared to defend on the grounds that they were necessary to win or retain the business? Acts of violence or intimidation, smuggling, theft, fraud, offences against the Trade Practices Act? Where does that primrose path end?

My second response would be, how secure is an asset based on a permit, licence or permission that was obtained illicitly and might hence be liable to forfeiture or cancellation? If a significant part of a company's revenues will derive from an asset with this flawed base, what should the company tell the stock exchange and/or its shareholders? What would it put in a prospectus?

More importantly, what are the effects of corrupt practices on a company's own interests? It would be hard to argue that the long history of corruption in the oil industry of Nigeria has led to an environment in which one would want to do business. This unhappy region is but one of many case studies demonstrating that where grand corruption goes, human rights abuses and environmental despoliation will be not far behind. So make no mistake, corruption is not a victimless crime, whether the victim be the shareholder or the oppressed.

Of course there are grey areas concerning the boundaries between corrupt inducements and facilitation payments.

But there is a satisfactory working guideline: in 1999 the Howard Government introduced legislation to eliminate the tax deductibility of bribes while preserving the tax deductibility of lawful facilitation payments.

In introducing the tax law amendment, Treasurer Peter Costello circulated definitions that he obviously regarded as satisfactory for tax administration. Roughly the guideline is that if the payment produces something you are not lawfully entitled to, it's a bribe. If the payment is small, and simply speeds up something you are lawfully entitled to expect, it's a facilitation payment.

Of course, corruption still goes on. In many places it is a way of life, a grim necessity, because in poor countries with high inflation, officials cannot live on their salaries. Hence demands for facilitation payments. What can be done, however, when the pressure is on, and it seems that others are not coming to the matter with clean hands?

One sound piece of advice would be, "Just say no!" Many of Australia's large corporations have precisely that policy: they are able to do business successfully on that basis, and they are proud of it. In fact our law requires companies to establish a culture of compliance.

Sometimes government can help. In 1989, I accompanied Bob Hawke on a visit to Pakistan for talks with newly elected prime minister Benazir Bhutto and her colleagues. In those pre-Telstra days, Telecom International was bidding for a World Bank-financed project to lay an optic-fibre spine from Rawalpindi to Karachi.

TI had a good bid, but we had good commercial intelligence that a European competitor was offering bribes to key Pakistani officials. I suggested to Hawke that he outline to Bhutto the advantages to Pakistan of the TI bid (which were real), she began to take a personal interest in this important project, and the compromised officials ducked for cover. TI won the contract.

Finally, there are wider national interests at stake here. For example, corruption is a major problem in Indonesia, and President Susilo Bambang Yudhoyono has made the fight against corruption a flagship issue for his administration.

Given all that the Australian community, including Australian business, has at stake in the success of his presidency, why would we want to tolerate any action by an Australian individual or company that subverts his efforts?


Paul Barratt is a former deputy secretary of the Department of Foreign Affairs and Trade and a former executive director of the Business Council of Australia.

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