Efforts to Fight Corruption in Emerging Markets

Corruption makes it hard for businesses to operate and economies to develop, stifling trade in emerging markets. People asked to engage in corrupt practices tend to fight back by exposing the extent of the corruption, figuring that if they can’t get governments to operate transparently, they can make the governments’ actions transparent through bad publicity. And governments that don’t support corruption work to pass legislation to punish people who pay bribes.

Laws designed to prevent bribery usually use two tactics:

  • Make bribery criminal: If you’re caught, you’re charged with a crime, and if you’re found guilty, you do the time (or pay a fine).

  • Use tax law: You may be free to pay a bribe, but you certainly can’t deduct it from your income taxes. And if you can’t write off bribes, they make doing business a lot more expensive.

On top of passing laws to limit bribery, countries that prohibit it usually try to get other countries to go along. Otherwise, the good guys are at a significant disadvantage, and that’s not right.

Some of the major organizations and legal standards that fight corruption you’re likely to come across as you research international business practices include:

  • OECD Anti-Bribery Convention: The 33 members of the Organization for Economic Cooperation and Development (OECD), which represents the world’s most economically developed countries, along with Argentina, Brazil, Bulgaria, Estonia, Israel, and South Africa, have agreed to pass anti-bribery legislation and to share information that they uncover when their citizens work overseas. The hope is that creating a common set of rules will reduce the incentive for companies to pay bribes and that, with more information, OECD members can improve enforcement.

    Because the OECD countries are the biggest and richest, they set a standard for how developed countries should behave. The Anti-Bribery Convention sends a message to those nations that aspire to OECD status that reducing corruption is a way to increase economic and political success.

  • Transparency International: This coalition tracks countries where bribes are expected as well as countries whose businesspeople are likely to pay bribes to corporations and government influencers. Its annual surveys tend to embarrass the leaders in countries that slip in the rankings; the organization’s greatest power is that of publicity.

  • U.S. Foreign Corrupt Practices Act: This 1977 law made it illegal for U.S. companies to make payments to government officials in other countries in exchange for any type of favor. The law also applies to foreign companies doing business in the United States. Corporations found in violation may be fined up to $2,000,000, and employees and officers may be fined up to $100,000 — and they have to pay that fine themselves; they aren’t allowed to have their employer pay it for them. Companies are allowed two defenses: First, small facilitating payments are allowed if they’re customary where the company is doing business. Second, if a company can prove that the payments are legal in the other country, then it may be off the hook.

    Many U.S. companies felt that this law put them at a disadvantage when they did business overseas. As a result of their concerns, the U.S. Department of State started working with the OECD to create a common set of rules for everyone doing business across borders, which became the OECD’s Anti-Bribery Convention.

  • The World Bank: This membership organization provides financing for huge infrastructure projects — roads, dams, airports, and so on — that can help a country accelerate its economic development. These projects are designed to create jobs and inject money into an emerging economy, but their huge scale attracts corrupt behavior.

    The World Bank takes a hard line against corruption. It offers training programs for everyone involved in its projects so that they understand the problem and how to fight it. It collects data on governance in different countries around the world, too, so that people doing business in a certain area can get a sense of how stable the government is, whether corruption is controlled, and whether the rule of law is strong enough to prevent problems.

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