USIS Washington 

24 February 1999


(Welcomes international code of business conduct) (3531)

Washington -- U.S. Under Secretary of State Stuart Eizenstat has
proposed international standards and norms as guidelines to attack
corruption in the global marketplace.

In a speech to Vice President Al Gore's Global Forum on Fighting
Corruption February 24, Eizenstat said an international consensus is
emerging around four norms in the anti-corruption fight:

1. Establishing open and accountable economic governance practices,
including vigorous enactment and enforcement of anti-bribery laws and
transparent economic decision-making.

2. Safeguarding integrity among justice, security and financial
regulatory officials.

3. Promoting openness and accountability in the private sector.

4. Strengthening institutions that ensure public and private
accountability, including strong and impartial judiciaries and a free
and open press.

Eizenstat said a number of worldwide reforms must be carried out to
reduce the scope for corruption. Those reforms include deregulation to
remove unnecessary licensing requirements, public sector and civil
service reform, public finance improvements to prevent reoccurrence of
the Asian financial crisis, and public oversight and participation.

Eizenstat also welcomed the proposal for strong voluntary codes of
business conduct developed by the Reverend Leon Sullivan, who played a
key role in mobilizing the private sector against South African
apartheid 20 years ago.

Following is the text of Eizenstat's speech as prepared for delivery:

(begin text)


FEBRUARY 24, 1999

Good afternoon. It is my pleasure to be with you today to chair this
panel discussion on economic governance, the private sector and
corruption. Corruption is an issue of enormous significance to both
the fixture of the global economy and the development of open economic
systems and democratic institutions. I commend the Vice President for
convening today's conference and devoting the full force of his office
to this endeavor. Over the past six years it has been my unique honor
to work with Vice President Gore on a number of foreign policy issues
and I couldn't be happier that he is taking an active, leadership role
on this issue.

The very convening of this conference highlights the fact that the
global fight against corruption and the promotion of good governance
and transparency, especially in developing and transitional economies,
has now become a significant priority of U.S. foreign policy.

And, for the first time in recent memory, there is a genuine sense of
optimism about the fight against corruption. The attendance of so many
governments at this conference reflects a fundamental sea change in
international attitudes. Today, governments around the world recognize
that corruption is a malignancy on their economies and political
institutions that can only be combated by the creation of transparent
and accountable economic and political systems firmly grounded in the
rule of law. Today our goals must be clear: beginning the difficult
process of translating the commitments made in the fight against
corruption into tangible results.

The Corruption Problem: Secretary of the Treasury Rubin has eloquently
discussed the corruption problem and its corrosive impact on
investment, economic growth, political stability and the development
of market-based and democratic political institutions. Plainly, all
nations have a genuine interest in preventing corruption and promoting
good governance. In particular, emerging and transitional economies
will find that unless they address this issue their efforts to attract
investment and maintain sustainable development will hit a brick wall.

Corruption thrives in emerging and transitional economies where legal
systems are incomplete or evolving. The very complexity,
over-regulation and lack of predictability serve as fertile incubators
for corruption to 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
government wages and oversized bureaucracies, also creates significant
incentives for corruption to prosper.

To be sure, the need for transparency and accountability is not the
exclusive province of the public sector. The recent international
financial crisis highlights the debilitating consequences of crony
capitalism and insider lending in the private sphere and the need for
reform in areas such as corporate governance and bank lending roles.
Bottom up, market driven approaches will be vital to ensuring sound
and effective solutions to the corruption problem.

New and powerful empirical work pioneered by Daniel Kaufmann and
others at the World Bank provide us with precise analysis of the
adverse economic consequences of corruption. The new research confirms
that corruption particularly hinders the development of small and
medium business -- the engine of jobs and growth in emerging markets.
For example, data from a World Bank survey indicates that in one
transitional economy in 1996 a typical small company employing less
than 30 people paid about $30,000 US dollars a year in bribes.

Such costs not only force small companies into the unofficial sector
or shadow economy but they also undermine the ability of governments
to collect tax revenues and balance budgets. Not surprisingly, World
Bank data also indicates that corruption disproportionately hurts the
poor, who can end up paying a higher share of corrupt "economic
rents." Not surprisingly, it is the poorest and least well off in
developing societies that often bear corruption's greatest burden.

The Vice President's Global Forum: Today, however, there is an
emerging international consensus around a series of important norms in
the anti-corruption fight:

-- First, establishing open and accountable economic governance
practices, including vigorous enactment and enforcement of
anti-bribery laws and transparent economic decision-making;

-- Second, safeguarding integrity among justice, security and
financial regulatory 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
a free and open press.

I am pleased to announce today that the United States will pursue a
series of specific diplomatic steps to translate these fundamental
norms into results. We invite all of you to join us in this campaign.

Supply-Side Efforts: 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. We will also seek the Convention's extension to
other key states whose companies compete for international contracts.

This agreement can serve as an effective model for how global
cooperation on corruption can help force a "race to the top," whereby
nations commit themselves to ensuring that globalization raises, and
not lowers, global standards.

We must move forward with implementation through the Convention's
important mutual evaluation process, 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 a powerful tool in our anti-corruption
toolbox. As the Secretary said this morning, no country has a monopoly
of wisdom on addressing corruption and by working together we can
maximize our efforts to achieve zero tolerance.

We also believe that implementation of the Convention and mutual
evaluation should be conducted out in the open and not behind closed
doors. We must explore ways to engage civil society in this effort.

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 a complete 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 eight 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 demand-side efforts --
that is, to promote the rule of law, transparency, and good governance
in developing nations and, in so doing, limit the opportunities for
corruption to grow in these dynamic and transitional environments.

Our efforts are focused in three specific areas:

-- First, by promoting adaption of developing global standards that
promote transparency and accountability in governance and the private

-- Second, by encouraging regional approaches to addressing the
corruption problem; and

-- Third, by supporting 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 standards in a wide range of areas affecting
economic life. Rhetoric alone is insufficient; the devil is in the
details. This is why it is critically important that we work together
to develop and seek a broad application of globally accepted standards
in key areas like accounting, budgetary transparency, bank lending and
supervision, corporate governance, and ethics, among others.

Moreover, such standards cannot be set and applied by OECD nations
alone. 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.

The draft OECD Guidelines on Corporate Governance is a good example of
this effort. The OECD has sought broad participation in this effort
and is opening up its comment process. Today, the guidelines are
available on the Internet and the OECD is engaging in outreach
activities. We must continue to work together in perfecting and
implementing these important standards, but our efforts are made
easier by initial broad-based participation.

Region-by-Region Approach: We also will intensity our efforts to
support regional approaches for addressing corruption. Already, we are
working with the U.S. Senate to seek ratification of the
Inter-American Convention Against Corruption and, through vigorous
diplomacy, we will work with countries in the Hemisphere to ensure its
full implementation. The Convention charts a new direction in the
fight against corruption by obligating countries to take specific
steps on the demand-side, including the establishment of sanctions
against government officials who accept bribes, as well as the persons
making bribes.

To date, 25 OAS countries have signed the Convention, and 14 have
deposited instruments of ratification. Already some OAS countries are
working to implement the Convention. For example, the government of
Argentina has created an office of Government Ethics, which is
preparing Argentina's first code of ethics. There is however, far more
work that needs to be done and we are pleased that the countries in
the region are committed to working together in developing a
hemispheric approach for addressing corruption and promoting good

Africa: Let me report on an exciting and important new development
concerning Africa. Just yesterday Ministers and senior officials from
11 African nations met here in Washington, under the auspices of the
Global Coalition for Africa, and adopted the African Ministerial
Declaration -- a series of 25 sound, realistic and enforceable
principles on corruption, economic governance and accountability. I am
pleased to have worked with them in laying the groundwork for an
African anti-corruption convention, and look forward to their efforts
in adopting national strategies to implement these important

Asia: In the wake of the Asian financial crisis business interests
from around the region are beginning to discuss a wide range of
anti-corruption issues ranging from legal and regulatory transparency
to customs and corporate governance. The goal is clear: enhance good
governance, restore market confidence and lay the groundwork for new
foreign direct investment.

Bilateral Approaches: Finally, the U.S. will intensify our work with
emerging economies to encourage the structural reforms needed to
promote transparency and accountability.

There is often a predisposition by many countries to focus on the
crime and law enforcement elements of the corruption problem. While
these 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 about more than just
new laws or even the building of institutions. It requires nothing
short than the creation 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 considering this issue, countries have begun to "de-bundle" the
corruption problem, and address its key elements separately.
Specifically, the types of reforms necessary to break the culture of
corruption fall into a number of discrete areas:

-- Economic policy reform including, in particular, deregulation. This
includes, the removal of onerous and unnecessary licensing
requirements, the reduction of discretionary authority over business
matters, which breeds corruption, and the introduction of more
competition into the economy. This involves fundamentally reshaping
the interaction between government and business to an arms-length

-- Transparency reforms, including efforts to streamline and make more
predictable administrative processes, such as procurement,
privatization, and customs. This includes steps such as public notice,
deadlines and explicit criteria for decision-making. In particular,
the need for procurement reform -- the establishment of fair and open
procedures for public purchasing with WTO norms -- is essential.
Similarly transparent procedures and criteria in the sale, licensing,
or other disposition of economic rights must also be a high priority.
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. The outright downsizing and
streamlining of government agencies is important for reducing the risk
of corruption and shrinking the role of the state in day-to-day
business matters. This includes the establishment of a professional
civil service and a merit-based system. We need to address the fact
that there are countries where positions in government are "purchased"
-- from customs inspectors to revenue agents -- simply to obtain the
lucrative rewards of bribery.

-- Public finance reform. Again, as we saw in the Asian financial
crisis, the failure to establish financial management controls,
accounting, auditing, and transparency in public finance can be a
recipe for disaster.

-- Judicial reform and the enforcement of judicial rulings. I cannot
emphasize enough the role that an independent and impartial judiciary
can play in the development of both democratic and market-based
institutions and in encouraging foreign direct investment.

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 generating economic development.

-- Public oversight and participation. These efforts include improved
public education and civic awareness programs, and active support for
human rights and citizen advocacy groups as well as an independent

-- 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.

Tools in the Anti-Corruption Toolbox: Significantly, there now are a
number of important tools available to governments in tackling these
issues and developing and implementing a concrete and integrated
anti-corruption strategy -- which can be used effectively in an
integrated fashion.

-- First, Diagnostics. As you will learn this afternoon from Daniel
Kautmann, countries can now conduct -- through their own institutes
and NGOs -- sophisticated diagnostic surveys of private firms, as well
as public and government officials, in order to document the costs of
corruption in areas such as customs business licensing, and

These cutting edge survey techniques allow nations to highlight
priority areas for reform. Based on this research, countries can
develop serious, results-oriented "action plans" rather than the
typical anti-corruption plans of the past, which often spent more
gathering dust than garnering results. As Vice President Gore
announced this morning, the United States plans to work in close
partnership with the Bank and other countries, donor organizations and
civil society in support of such diagnostic approaches. When a country
is committed to rigorous diagnostics as a means of shaping real
reforms, we at the State Department and USAID will look for ways to
support their efforts.

I challenge all countries to consider empowering their own publics
through undertaking these diagnostics and making the findings public.
Only through a true and public accounting and participation by all
elements of society can the work of shaping remedies proceed.

-- Second, work with the Private Sector. As Maria Cattaui will
discuss, the private sector can and should establish its own internal
corporate compliance programs on bribery, corruption and transparency
and follow these standards in all its business dealings.

The idea of strong voluntary codes of conduct is now gaining currency.
The "leveling up" of global standards of business conduct is an
innovative bottom up approach to fighting corruption. In this
connection, I applaud and welcome the personal, and not government
sponsored, efforts of Reverend Leon Sullivan to develop the Global
Sullivan Principles. Reverend Sullivan, whose efforts on the original
"Sullivan Principles" played a key role in mobilizing the private
sector against apartheid over 20 years ago, stands out as a beacon for
change. He recently briefed us on his ongoing work to develop new
global principles that would support anti-corruption efforts and
establish best practices in sustainable development, fair treatment of
workers and support for community development. We look forward to
cooperating with Reverend Sullivan and others in initiating these
types of private sector efforts.

Governments must be willing to work together with the private sector
in public/private partnerships and make them stakeholders in your
anti-corruption efforts. Establishing a dialogue with both local firms
and foreign investors can help governments to highlight corruption
problems that seriously affect the business and investment climate and
shape appropriate priorities for a transparency agenda.

Secretary of State Albright recently highlighted the need for a
"private sector peace corps" which could "harness the expertise of the
private sector to provide hands-on advice on how to attract reliable
long-term investment and incorporate best practices." We are now
examining new people-to-people approaches for operationalizing the
Secretary's vision and marshaling our private sector resources and
talent to provide training on transparency and accountability to
private sectors in emerging markets hit by the financial crisis.

One example of this is the training programs being run by the Kenan
Institute Asia in Thailand. The Institute is supported by the
Kenan-Flagler Business School at the University of North Carolina,
USAID and the Royal Thai Government. Working together with a private
group of firms -- the American Corporations in Thailand, the Institute
has provided an intensive accounting and auditing training course to
out-of-work Thai managers in order to smooth their transition to new
jobs and encourage good corporate governance. This type of joint
public/private effort is particularly important in seeking broad
application of the new and evolving rules of private sector

-- Third, Results-Oriented Policy Dialogue & Technical Assistance.
When countries indicate a willingness to adopt specific reforms in
combating corruption the United States stands ready to support these
efforts and will consider targeted technical assistance either
bilaterally or in conjunction with other donor countries and
institutions. Where necessary, we will work to establish donor
coordination mechanisms and private/public partnerships to support
these efforts and leverage available resources. Countries should
seriously consider the experience of other countries in their region
in addressing these issues, and should seek to identify regional best
practices of particular relevance.

-- Fourth, Work with International Financial Institutions. I hope you
will join the United States in calling on the Fund, the Bank and other
institutions to fully take corruption, economic governance and rule of
law into account in their lending operations -- both in determining
whether to make loans and also in establishing loan conditions. The
future credibility of our multilateral development institutions may
very well depend on their sensitivity in dealing with these important

--Fifth, Mutual Evaluation and National Implementation. As work
progresses in this area, it is important that we develop international
and national approaches for ongoing evaluation and monitoring. Mutual
evaluation can be a very powerful tool for building momentum for our
anti-corruption efforts.

-- Finally, Work with NGOs. Transparency International, which has
conducted AID-funded workshops in various countries, and other NGOs
can play important roles in encouraging and working to support
demand-side reforms -- in providing "local" policy advice to
governments and helping to build business community and other grass
roots support for change.

As we move toward the 21st century it is absolutely essential that
governments, the private sector and NGOs join together in taking on
the challenge of ensuring that popular confidence in democratic reform
and economic liberalization is not undermined by corruption. Ensuring
good governance and transparency will not be simple, but by working
together, I believe we can -- working in partnership -- make this goal
a reality. Thank you and good afternoon.

(end text)