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U.S. Department of State
95/04/10: Daniel Tarullo on Corrupt Payments
Office of the Coordinator for Business Affairs
DEVELOPMENTS AT THE OECD IN THE MULTILATERAL
REGULATION OF CORRUPT PAYMENTS
DANIEL K. TARULLO
Assistant Secretary of State
for Economic and Business Affairs
Institute for International Law and Business
April 10, 1995
On May 26, 1994, the Council of the Organisation for Economic
Cooperation and Development adopted its Recommendation that Member
States take action to combat bribery by their businesses of foreign
public officials. With its emphasis on action, rather than on further
deliberation, the Recommendation was a milestone in the international
campaign against corruption. Yet nearly a year later, implementation of
the Recommendation by OECD Member States has barely begun.
Disappointing as this record is, it is not entirely unexpected. The
fight against corruption, and the cynical attitude of toleration that
accompanies it, has not been easy. Allies have often been slow to step
This afternoon I will review why the United States is committed to this
struggle, why we believe that multilateral action is needed, and how the
OECD Recommendation evolved. Then I will shift my focus forward, to
what we expect in the OECD and elsewhere in the coming months, as we
continue -- and, if necessary, intensify -- our efforts to achieve
multilateral cooperation to combat corruption.
The Menace of Bribery
There seems little doubt that bribery by companies seeking to obtain or
maintain business has increased dramatically in the last fifteen years.
Because illicit payments are by their nature covert, it is impossible to
quantify their amount or frequency accurately. But accounts from
business executives, development economists, officials from developing
and newly independent countries, and journalists throughout the world
underscore the breadth and seriousness of the problem.
A sophisticated audience like this one will recognize the range of
euphemisms intended to put a benign face on the practice -- inducements,
sweeteners, commissions, discretionary funds. However, semantic
manipulation cannot obscure the fact that bribery of government
officials by foreign companies has become frighteningly widespread.
The most obvious occasions for bribery are very large contracts, in
which stakes are high and a bribe for even 5% of the value can mean a
small fortune for an official in a position to influence the award.
Thus large infrastructure projects and large military acquisitions
present particularly attractive targets for potential bribers. Yet I
have heard stories of bribes being paid in less predictable
circumstances, such as to keep a competitor's products off a list of
certified government contractors.
The very pervasiveness of bribery makes it all the more intolerable.
Quite apart from the moral implications of the practice, bribery
threatens several important interests.
First, bribery distorts market and hinders economic development. When
competitive bidding becomes competitive bribing, market forces no longer
guarantee efficient outcomes. A corrupt payment may lead to purchases
of products or services that would not otherwise occur, thereby
displacing other kinds of investment that would better serve the people
of the country concerned. Or, even if the purchase of the good or
service would be made in the absence of bribes, the cost will be higher
or the quality lower than would otherwise be the case. The impact of
this misallocation of resources is very likely to be greatest in
countries least able to afford it.
Second, bribes undermine democratic accountability. By definition,
officials who reap large dividends from bribes are not accountable to
the citizens they supposedly serve. Weak governments are made weaker by
widespread corruption, and public trust becomes harder to maintain.
Indeed, corruption can join with other criminal activities to threaten
the very security of an emergent state or democracy.
Third, bribery by companies of foreign public officials creates a kind
of non-tariff barrier to efficient trade that disadvantages companies
which, by law or corporate practice, refuse to engage in the practice.
The existence of the Foreign Corrupt Practices Act in the United States
means that American companies can find themselves in just these
Let me emphasize that, while we regard this competitive disadvantage as
significant and unacceptable, it is far from the only motivation for
U.S. Government action in this area. As the creation of Transparency
International and a special committee on bribery at the Organization of
American States shows, the economic and democratic interests implicated
by bribery are important. They too impel us to action.
The Drive for Multilateral Action
As all of you know, the discovery of bribery scandals involving an
American company prompted Congress to pass the Foreign Corrupt Practices
Act in 1977. Much of the rest of the world, particularly the
industrialized world, regarded the Act as another example of naive
American moralism. The prevailing view was that many countries were
possessed of a culture of corruption, to which foreign businesses must
adjust if they wished to do business successfully. Indeed, as I learned
during the negotiation of the OECD Recommendation, this attitude remains
all too common today.
But acquiescence by those from industrialized countries in overseas
bribery is a form of complicity in the practice, and in the corrosive
effects of bribery upon democracy and economic development. We are not
speaking here of a practice whose merits and demerits are the subject of
serious disagreement. During my extensive discussions on the OECD
exercise, I never heard anyone defend bribery. The only question has
been what governments from the industrialized world are prepared to do
The United States first attempted to move the OECD to action on corrupt
practices in 1978 by building on a provision discouraging bribes in the
OECD's 1976 Guidelines on Multinational Enterprises. At that time,
there was little support for the effort, which languished through the
In the 1988 Trade Act, Congress included a provision that the President
should seek to negotiate an international agreement on the prohibition
of overseas bribery of the sort forbidden by the FCPA. The next year,
the United States proposed such a negotiation in the OECD, which
launched an Ad Hoc Group on Illicit Payments to study the issue. An
inventory of Member State legislation revealed that, while all OECD
countries outlaw domestic bribery, only the United States had
legislation specifically prohibiting bribery by its companies overseas.
By 1993, after nearly four years of discussion, the OECD was working on
a draft Recommendation which would essentially have decried the
pervasiveness of bribery in international commerce and established a
working group within the OECD to study the issue for another two or
three years. In a speech in October 1993, Secretary Christopher
rejected this path as inadequate and proposed a more activist OECD
Our basic message in the negotiations that ensued over the next seven
months was that the time had come for action, rather than simply more
discussion. The problems of bribery were evident, as were policy
options for restraining bribery in international commerce.
During multilateral and bilateral discussions of the proposed
Recommendation, we encountered three fundamental objections to our call
First, some suggested that the industrialized countries had neither the
responsibility nor the ability to deal with corruption in overseas
markets. The message was that it was up to developing countries to
clean their own houses. This, of course, was a prescription for
essentially indefinite inaction by the OECD Member States. Our response
was that bribery requires both a briber and a recipient. Restraining
bribers would not solve the entire problem, but it would certainly
contribute to a solution. Moreover, many of the countries in question
have only limited capacity for enforcing their own laws against bribery.
While the final Recommendation rejects any sense that the industrialized
countries can abdicate responsibility for overseas bribery, this
objection reflected the rather cynical views that continue to bedevil
the fight against corruption. On one occasion, I was told by a foreign
official that his country's companies did not engage in bribery. When I
raised my eyebrows in response, he quickly added that it would be
impossible to prohibit overseas bribery because some exports might
thereby be lost.
Second, numerous government interlocutors objected that what we proposed
would require extraterritorial action. In all honesty, we found this
argument to be something of a red herring as well. As you all know, the
FCPA itself requires a nexus with interstate commerce in order to apply
to corrupt practices. Moreover, we are seeking action by other
governments to restrain companies domiciled within their territories
which are breaking the laws of other countries. So far as I am aware,
every country in the world prohibits domestic bribery. Thus a law
prohibiting overseas bribery would pose no conflict whatever with
foreign laws. To the contrary, it would align with, and support, those
Third, many OECD Member States resisted anything they saw as an effort
to impose a uniform criminal law on all two dozen countries. Many
expressed a willingness to take some form of action against overseas
bribery, but claimed their legal systems might not be congurent with
measures identical to the FCPA or other actions taken in particular
Member States. While our aim remains the criminalization of bribery by
all OECD Member States, we attempted to accommodate these concerns by
agreeing that national action should be taken in conformity with a
country's basic legal principles and precedents. This qualification
does not vitiate the basic commitment to action; it simply allows States
to act in ways compatible with their general legal systems.
We discovered that there was a good deal more sympathy to our aims in
the higher reaches of some of the other governments than apparently
existed at the working level. Secretary Christopher's speeches and my
visits to capitals seemed to draw the attention of higher level
officials who had been unaware of the OECD exercise. At the same time,
public and media interest in the issue of corruption had risen to a very
high level in some countries. I think governments began to recognize
that both in fact and in public perception, tolerance of corruption
abroad could not be separated from tolerance of corruption at home.
A final factor that led to a stronger recommendation than had been
anticipated was that developing countries themselves had begun to speak
in clear terms against bribery from overseas companies. While
acknowledging their own responsibility for cleaning up their
governments, officials from a number of countries also called on the
industrialized countries which are the source of so many bribes to
restrain their own companies.
The OECD Recommendation
In late April 1994 the OECD Committee on Investment and Multinational
Enterprises agreed on a compromise text of the Recommendation, which was
adopted by the Council the next month. The Recommendation calls upon
OECD Members to "take effective measures to deter, prevent and combat
bribery of foreign public officials in connection with international
business transactions." It makes clear that its essence is action by
calling on Member States to "take concrete and meaningful steps to meet
this goal." This is the key language on which extended negotiation was
The other element of the compromise is that no single action is required
by any single Member State. Criminalization, non-deductibility, banking
laws, accounting rules, government procurement practices, and other
legislative and administrative provisions are all identified as possible
"concrete and meaningful steps," but no one step is required of every
A couple of other features of the Recommendation are also worth
highlighting. Section IV calls for international cooperation among
enforcement authorities investigating and prosecuting specific cases of
bribery. It also calls on Member States to ensure that their national
laws afford an adequate basis for this cooperation and to enter, where
necessary, into new agreements for international legal assistance.
Section VIII establishes a Working Group on Bribery in International
Business Transactions, to which a very broad mandate is given. This
group is to carry out regular reviews of the implementation of the
Recommendation by Member States and to work with the Committee on Fiscal
Affairs on the issue of tax deductibility of bribes. The group may also
examine specific issues relating to bribery. It is further instructed
to provide a forum for consultations among Member States.
The Slow Pace of Implementation
As I said earlier, implementation of the Recommendation has been slow.
To date, the activities of the Working Group have been limited to
sponsoring a Symposium on Corruption and Good Governance in Paris last
month and conducting a survey on measures of Member States that may be
used to combat overseas bribery.
The Symposium was a useful undertaking, if for no other reason than the
opportunity it provided representatives of developing countries to
shatter the myth that they are resigned to corruption in their
countries. And the survey is an acceptable, if somewhat formalized,
effort to catalogue what countries can accomplish with existing law and
what, if any, measures they have taken to strengthen their capacity to
fight overseas corruption.
But the prevailing attitude in the working group causes us some concern.
Few countries have submitted their survey responses on time, despite
having had three months to complete them. The work program seems to
contemplate moving to a collective consideration of issues one by one
over the next few years. As too often happens in the OECD, the group
instinct is to talk, not act.
The import of the negotiated changes in the text of the Recommendation
could not be more clear. Neither could the expectations for action we
expressed throughout the negotiating process. The Recommendation itself
did nothing to combat bribery, but it called upon Member States to act
in pursuit of this end.
If we seem impatient to our colleagues in the OECD, it is because five
years of multilateral study is more than sufficient. Member States need
not await further study by the OECD working group. They should be
taking steps on their own to combat overseas bribery. After all, it was
at their urging that the Recommendation focussed on national action
customized to the legal systems of the individual Member States.
Our impatience is shared by others -- by developing country officials
who are attempting to create the "islands of integrity" called for by
Transparency International; by development economists who despair of the
impact of corruption on development, and by our companies, who continue
to lose contracts to foreign competitors that bribe officials in third
country markets. We insist upon levelling the playing field for our
companies without compromising our opposition to bribery.
And so, although some would doubtless prefer that the United States now
sit back and accept a leisurely pace for implementation of the OECD
Recommendation, we will continue to press for prompt action. We applaud
those members of the OECD which have concluded that their existing anti-
bribery statutes can apply to overseas bribes. But we call on these
members to put in place effective monitoring mechanisms and statements
of intention to enforce the laws, so as to be sure their intentions to
discourage the practice are realized. Old laws that have never been
used against overseas bribery must be given special attention if they
are to serve new purposes.
More fundamentally, we call upon all OECD Member States to take action,
as called for in the Recommendation. If a country doubts its companies
engage in bribery overseas, perhaps they would like to solicit our
experience in the matter. We may be able to provide the country with
reports which suggest otherwise.
At home, we have noted a variety of proposals from Congress and
business groups for taking steps to level the playing field for U.S.
companies. These suggestions range from amending our securities laws,
to withholding export advocacy or assistance from companies that do not
maintain policies against overseas bribery, to changing our government
procurement practices to ensure that the Government contracts only with
companies that abide by the basic anti-bribery principles embodied in
Despite our having the FCPA, non-deductibility provisions, and extensive
disclosure requirements in our own law, there may well be more we can
do, particularly in seeking to ensure that foreign companies operating
in the United States do not gain competitive advantage over U.S.
companies by use of overseas bribery. In accordance with the OECD
Recommendation, we are reviewing a number of these proposals to see if
further action is warranted.
Throughout negotiation of the OECD Recommendation, we warned others that
this issue would not disappear. We should have added that we will not
disappear either. Secretary Christopher and Ambassador Kantor remain
keenly interested in the issue. I intend to raise it at the OECD
Executive Committee meeting next month. We are pleased that the
Recommendation advanced public and Member State awareness of the
problem, and committed the Member States to action. Now that action
must be forthcoming.
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