USIS Washington 

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

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

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)

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

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

-- Second, safeguarding integrity among justice, security, financial
regulatory and procurement officials;

-- Third, promoting openness and accountability in the private sector;

-- 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

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

-- 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

-- 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

(end text)