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 
 
                                  Remarks of  
                               DANIEL K. TARULLO 
                         Assistant Secretary of State 
                      for Economic and Business Affairs 
                                  before the 
               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 
forward. 
 
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 
disadvantaged circumstances. 
 
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 
about it. 
 
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 
1980s. 
 
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  
approach. 
 
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 
for action. 
 
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 
laws. 
 
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 
required.  
 
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 
government. 
 
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 
the FCPA. 
 
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. 
 
Conclusion 
 
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.