22 February 1999
(Describes U.S. supply- and demand-sides approach) (2910) Washington -- Under Secretary of State Stuart Eizenstat has outlined the Clinton administration's continuing program for reducing the incidence of international bribery of foreign government officials. He made the remarks February 22 at an Organization for Economic Cooperation and Development (OECD) conference in Washington called "Fighting Corruption in Developing Countries and Emerging Economies: The Role of the Private Sector." The OECD conference February 22-23 just precedes Vice President Gore's Global Forum on Fighting Corruption February 24-26. Eizenstat said the administration policy aims at both the supply and demand sides of the problem. On the supply side, he said, the administration seeks ratification and full implementation of the 1998 OECD agreement making bribery of foreign officials a crime. He said it also seeks implementation of the earlier OECD recommendation for prohibiting tax deductions of bribes paid to foreign officials. "We also will seek to extend the Convention to cover bribery of foreign political parties, party officials, and candidates for political office, which are currently not directly covered," Eizenstat said. On the demand side, he said, the administration seeks to promote the rule of law, transparency, and good governance in developing and transitional economies. He said the administration wants those economies to enact and vigorously enforce anti-bribery laws; safeguard integrity among officials; promote openness and accountability in the private sector; and strengthen institutions that ensure accountability, including strong and impartial courts and a free and open press. "Corruption thrives in emerging and transitional economies where legal systems are either incomplete or evolving," Eizenstat said. "The very complexity, over-regulation and lack of predictability in developing countries serve as fertile incubators for corruption to fester and grow." Following are some terms and acronyms used in the text: -- OECD: Organization for Economic Cooperation and Development -- FCPA: Foreign Corrupt Practices Act -- Albright: Secretary of State Madeleine Albright -- G8: Group of Seven (G-7) industrialized countries plus Russia -- NGOs: non-government organizations -- OAS: Organization of American States Following is Eizenstat's text as prepared for delivery: (begin text) AN ANTI-CORRUPTION AND GOOD GOVERNANCE STRATEGY FOR THE 21ST CENTURY Stuart Eizenstat Under Secretary of State for Economics, Business, and Agricultural Affairs Remarks at Organization for Economic Cooperation and Development (OECD) conference on "Fighting Corruption in Developing Countries and Emerging Economies: The Role of the Private Sector" Washington, DC February 22, 1999 Good afternoon. It is my pleasure to be with you today to discuss an issue that is of enormous importance to the United States and to the development of democratic institutions and open economic systems around the world. The global fight against corruption and the promotion of good governance and transparency, particularly in developing and transitional economies, is very much in our national interest and has now become an integral component of the Clinton Administration's foreign policy. I would like to talk to you today about what we are doing to combat corruption and promote good governance and the rule of law, what you in the private sector can do to help, and where we can work together in public/private initiatives. What I want to stress today is our sense of optimism about the fight against corruption. In recent years there has been a fundamental sea change in this area. Governments around the world are now recognizing the critical importance of combating the malignancy of corruption and creating transparent economic and political systems firmly grounded in the rule of law. Today, our goals must be clear: beginning the difficult process of translating our rhetoric on corruption and the commitments made into concrete and tangible results. Indeed, to underscore the enormous importance the United States attaches to this issue, the Vice President, later this week, will be hosting a Global Forum on Fighting Corruption that will focus on safeguarding integrity among justice and security personnel. It will involve governments and organizations from over 80 countries. Our meetings today and tomorrow will highlight the fact that effective anti-corruption strategies are not the exclusive province of governments. Bottom up, inclusive, market-driven approaches are equally important in ensuring sound and effective solutions. The Corruption Problem. The problem of corruption in developing economies is well documented. Corruption thrives in emerging and transitional economies where legal systems are either incomplete or evolving. The very complexity, over-regulation and lack of predictability in developing countries serve as fertile incubators for corruption to fester and grow. Paradoxically, as economies liberalize and open their doors to foreign investment and trade, the very processes of change -- privatization, procurement, the sale and licensing of economic rights, and the like -- become areas where corruption tends to flourish. Moreover, the legacy of corruption, combined with low levels of government wages, economic stagnation and oversized bureaucracies, create significant incentives for corruption to prosper. More often than not it is the least well-off who pay the price as corruption disproportionately affects the poor in emerging markets, who can end up paying a higher share of corrupt "economic rents." U.S. Interests At Stake. Of course, the damage wrought by corruption is not just a problem for the developing world. The scourge of corruption crosses borders and infects all members of the global economy. When scarce resources go to lining pockets, economic development and reform is slowed, investment and economic growth are impeded, the development of democratic institutions is thwarted and the vitality of the world economy is undermined. Moreover, corruption hurts U.S. exporters and suppliers and impedes international trade. In short, when corruption is allowed to continue with impunity, everyone pays the price. The Vice President's Global Forum. The Vice President's Global Forum later this month will mark the starting point of America's campaign -- to combat corruption and promote good governance around the world. As we will fully discuss at the Vice President's Global Forum, there is an emerging consensus around a series of important global norms: -- First, establishing open and accountable economic governance practices, including vigorous enactment and enforcement of anti-bribery laws and transparent and disinterested economic decision-making; -- Second, safeguarding integrity among justice, security, financial regulatory and procurement officials; -- Third, promoting openness and accountability in the private sector; and -- Fourth, strengthening institutions that ensure public and private accountability, including strong and impartial judiciaries, as well as free and open press. Over the next two years, we will pursue a series of concrete diplomatic efforts to translate these fundamental norms into effective action worldwide and, in so doing, begin a "race to the top" in all anti-corruption areas. Supply-Side Efforts. First, on the supply side, our focus will be to seek ratification and full implementation of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions by all signatories and seek its extension to other key states, whose companies compete for international contracts. As 22 signatories have not yet ratified the Convention, we will be pressing this issue vigorously with our diplomatic counterparts. I am especially pleased to celebrate, with this group, the entry into force last week of this key Convention. The Convention serves as a model for how global cooperation can help force a "race to the top," whereby nations commit themselves to ensuring that globalization raises, and not lowers, global standards. I am particularly gratified that two decades after having helped develop the FCPA as then-President Carter's chief domestic advisor, other industrial nations are now binding themselves to similar commitments. This will help to provide a more level playing field for all international businesses. However, this is not a time to rest on our laurels. We must move forward with implementation through the important mutual evaluation process established by the Convention, which will examine the written laws and regulations of ratifying countries to determine whether they are in compliance with the Convention. We will then seek to examine whether in practice compliance is occurring; prosecutions are being made and new laws are being enforced. It is our expectation that this rigorous mechanism will become an important tool in our anti-corruption toolbox. On the supply side, we also will seek to extend the Convention to cover bribery of foreign political parties, party officials, and candidates for political office, which are currently not directly covered. We will also seek an end to the practice, tolerated in some countries, of allowing the tax deductibility of bribes. When the OECD issued its recommendation calling for elimination of the practice in 1996, at least 14 OECD countries allowed tax deductions in various forms. This has now been reduced to 8 countries, but our ultimate goal must be zero. Demand-Side Efforts. Under the leadership of the Vice President and Secretary Albright, we also will accelerate our efforts on the demand-side of the corruption agenda -- that is, to promote the rule of law, transparency, and good governance in developing and transitional economies and, in so doing, limit the opportunities for corruption in these dynamic environments. Our evolving approach is threefold: -- First, to promote and urge adoption of developing global standards that promote transparency and accountability in governance and the private sector; -- Second, to encourage and support regional approaches to addressing the corruption; and -- Third, to promote key structural reforms in emerging markets directed at removing incentives to corruption and fostering favorable climates for investment trade and economic growth. Global Standards. True transparency and accountability requires specific and detailed approaches in a wide range of economic areas. That is why, working with the G-8 and other international institutions, it is critically important that we develop and seek broad application of standards in key areas like accounting, budgetary transparency, bank lending, corporate governance, and ethics, among others. Rhetoric alone here is insufficient; the devil is in the details. Moreover, such standards cannot be set and applied by OECD nations alone, and transitional and emerging market countries must be made stakeholders in this effort. This is an area where governments, multilateral institutions, private sector and NGOs must work together. Region-by-Region Approach. In addition to our global agenda, we are also intensifying our regional anti-corruption and good governance efforts. In the Western Hemisphere, we will work with the U.S. Senate to seek ratification of the Inter-American Convention Against Corruption and, through vigorous diplomacy, ensure its full implementation. The Convention charts a new direction in the fight against corruption. Specifically, it obligates countries to take real actions on the demand-side, including the establishment of sanctions against government officials that accept bribes as well as those persons making bribes. To date, 25 OAS countries have signed the Convention, and 14 have deposited instruments of ratification. We applaud the steps that OAS countries are taking to implement the Convention. For example, the government of Argentina has created an office of Government Ethics, which is preparing the nation's first code of ethics. However, there is much more work to be done here. And, we are pleased that the countries in the region have made a commitment to work together in developing a hemispheric approach to addressing corruption. Africa. In Africa a number of governments and private sector leaders are demonstrating a new willingness to confront corruption head on. Indeed, Ministers and senior officials from 11 African nations are meeting this week in Washington to discuss anti-corruption principles -- under the auspices of the Global Coalition for Africa. I commend this effort and urge them to develop sound, realistic, and enforceable approaches to addressing this issue. Asia. In the wake of the Asian financial crisis business interests from around the region are beginning to discuss issues ranging from legal and regulatory transparency to customs and corporate governance in order to enhance good governance, restore market confidence and lay the groundwork for new foreign direct investment. These companies are prepared to move ahead and encourage commitment -- in advance of government action. Bilateral Approaches. Finally, the U.S. will work bilaterally with emerging economies to encourage the structural reforms needed to promote transparency and accountability. Countries seeking our support for their anti-corruption efforts often focus heavily on crime and law enforcement elements of the corruption problem. While there are clearly important, we must also recognize that corruption is a broad systemic problem with many economic aspects. The need for change in emerging and transitional economies is not just a matter of new laws or even the building of institutions. It requires nothing less than the building of civil societies and open economic governance in nations long dominated by non-democratic, autocratic traditions. In order to eradicate the culture of corruption we must replace cynicism about the rule of law with a renewed sense of optimism. In addressing the corruption issue, countries have begun to "debundle" the problem and address its key elements separately. Specifically, the types of reforms necessary to break the culture of corruption fall into a number of specific areas. These include: -- Economic policy reform, including deregulation and the reduction of discretionary authority over business matters, which often breeds corruption. -- Transparency reforms, such as steps to streamline and make more predictable administrative processes affecting trade and investment such as procurement, privatization, and customs. It is important to develop transparent procedures and criteria in the sale, licensing, or other disposition of economic rights. All too frequently firms competing to acquire telecommunications spectrum rights or an oilfield concession encounter serious problems in this area. -- Public sector/civil service reform, including the downsizing of governments in formerly state-controlled economies as well as the streamlining of many government agencies. -- Public finance reform. Again, as we saw in the Asian financial crisis, the failure to establish financial management controls, accounting and auditing, and transparency in public finance can be a recipe for disaster. -- Judicial reform and the enforcement of judicial rulings. An independent and impartial judiciary free of corruption is absolutely essential in breeding confidence in the rule of law and can play a critical role in the development of both democratic and market-based institutions. -- Commercial law reform and the establishment of appropriate regulatory institutions. This covers areas ranging from securities law and shareholder rights to real estate, intellectual property, bankruptcy, antitrust, and environmental law. The establishment and implementation of a fair, predictable and flexible set of commercial legal rules is vital to attracting foreign investment and in turn generating economic development. -- Public oversight and participation. These efforts can include improved public education and civic awareness programs, as well as active support for human rights and citizen advocacy groups and the development of an independent media. -- Finally, ethics reform. The establishment of codes of conduct for government and judicial officials and financial disclosure rules is critical for developing popular confidence in public officials and democratic institutions. In developing and implementing effective anti-corruption strategies, governments now have a number of established tools at their disposal -- many of which can be used effectively in an integrated fashion. These include the use of diagnostic surveys to identify priority areas for reform, consultations with the business community, policy dialogue with the U.S. and other governments and international institutions, the use of technical assistance, and work with the NGO community. Let me make several observations about the tools in our anticorruption toolbox. As you heard from Daniel Kaufmann this morning, the World Bank's Economic Development Institute is pioneering the use of sophisticated diagnostic techniques. Specifically, the Bank surveys private firms, public and government officials in developing countries in order to document the costs of corruption in particular areas where governments provide services (customs, business licensing, procurement, etc.) and highlight priority areas for reform. These surveys are proving very useful for countries in developing serious, results-oriented "action plans" rather than the typical anti-corruption plans of the past, which usually ended up gathering dust instead of garnering results. They are important in empowering the private sector and public at large to play a key role in addressing corruption. Let me also underscore that anti-corruption efforts are by no means reserved for the public sector. We appreciate very much the support the business and NGO communities have provided on the OECD Convention and look forward to working with you on the OAS Convention. Conclusion: The Role of the Private Sector. Let me close by laying down a challenge for the future. As members of the private sector, you can be agents of change here. First, you can help by establishing your own internal corporate compliance programs and best practices on bribery, corruption and transparency and follow these standards in your business dealings. The concept of voluntary codes of conduct, now gaining currency, is an important bottom-up approach on corruption. Second, you can offer to provide assistance to firms in emerging markets -- through training on best practices in transparency-related areas. Your expertise and know-how can be of significant value. Third, you can highlight -- for governments in emerging markets -- the importance of developing specific anti-corruption measures and good governance to creating a hospitable environment for investment. Finally, you can work together with government in public-private partnerships in this area -- a subject you will be talking about in depth this afternoon. These types of efforts can make a difference in fighting corruption and promoting good governance. As we move toward the 21st century it is absolutely essential that we take on the challenge of ensuring that popular confidence in democratic reform and economic liberalization is not undermined by corruption. The challenge of ensuring good governance and transparency will not be simple, but by working together I believe we can make this goal a reality. Thank you and good afternoon. (end text)