15 February 2000
(Feb. 14: Opening statement and Q&A session) (4,720) Alan Larson, U.S. Under Secretary of State for Economic, Business and Agricultural Affairs, briefed journalists February 14 at the State Department on U.S. and international anti-corruption efforts. He pointed out that 21 of the 34 signatory countries to the anti-bribery convention of the Organization for Economic Cooperation and Development (OECD) have now ratified it, thus making it "a crime for their citizens to bribe a foreign government official to obtain or retain international business." The 29 OECD members, comprising many of the world's market economies, plus five countries from Latin America and eastern Europe have signed the treaty, which entered into force on February 15, 1999. Larson said the domestic anti-bribery laws of 16 countries have been reviewed, and that the next phase will involve monitoring enforcement of the convention. He said several loopholes still need to be closed: 13 signatory states have not ratified the convention; France is considering legislation that appears to authorize the payment of bribes if companies claim that the bribes had been promised in the past; the United Kingdom uses a 1906 law that does not cover bribery committed outside the country; and Japan's law lacks strong penalties and contains "significant loopholes." Furthermore, some signatory states still permit tax deductions for bribes paid foreign governments and officials. Developed countries "have to be a part of the solution," Larson said. "So we do encourage all the signatories to the OECD convention that have not already done so to use the next six months to ratify the convention, to enact effective domestic implementing legislation, and to end the practice of granting tax deductions for overseas commercial bribes." In the question-and-answer session, Larson wouldn't single out countries of particular concern, although he said that "most of the transition economies... have relatively fragile and weak democratic institutions," and so find corruption to be a serious problem. And some of the major developing countries also find that corruption "really weakens their efforts to turn things around." The U.S. government has three important stakes in the problem, Larson said: -- It is a foreign policy priority to promote democratization, and "corruption directly erodes the strength of democratic institutions"; -- Corruption "saps the development potential" of countries, pulling resources from areas like health and education into less effective uses; and -- It has a corrosive effect on global trade: "If the international trade system is going to be one that inspires confidence, then we have to make sure that trade is conducted on a clean, open basis." Fighting bribery and corruption is "very important as part of a policy of encouraging significant amounts of investment, domestic as well as foreign investment," he stressed. Asked if upper level government and business officials resist the anti-corruption message because they make money from bribes, Larson responded that "what we have found is that government leaders at the top see this as such an important issue for the welfare of their countries that they are not only ready but they are eager to work with us on these problems." Following is the State Department transcript: (begin transcript) U.S. DEPARTMENT OF STATE Office of the Spokesman February 14, 2000 ON-THE-RECORD BRIEFING UNDER SECRETARY FOR ECONOMIC, BUSINESS AND AGRICULTURAL AFFAIRS ALAN P. LARSON ON U.S. AND INTERNATIONAL ANTI-CORRUPTION EFFORTS Washington, D.C. UNDER SECRETARY LARSON: Thank you very much. As indicated, tomorrow is the first anniversary of the entry into force of the OECD anti-bribery convention and, to mark that occasion, I would like to give you a very brief progress report on some of the administration's efforts to combat corruption in international business transactions. The fight against corruption is a high priority in our foreign policy. We believe that corruption undermines democratic accountability and can be a particularly pernicious phenomenon in developing or transition states that have weak institutions. We think corruption can distort and undercut development and it, thirdly, can erode confidence in the international trading system. The United States has taken a leading position in fighting overseas commercial bribery ever since the enactment in 1977 of the Foreign Corrupt Practices Act. We led the efforts to negotiate the international convention in the OECD that basically has enshrined the core principles of the FCPA. Those efforts came to fruition in December of 1997 when 29 member countries of the OECD, joined by five non-OECD countries, signed the OECD convention on combating bribery of foreign public officials in international business transactions. Secretary Albright attended that signing ceremony and signed on behalf of the United States. The United States Senate ratified this convention in 1998 and, in the same year, Congress passed implementing legislation that slightly broadened the Foreign Corrupt Practices Act in order to make it conform to our new obligations under the convention. On February 15 of last year, the convention entered into force for the United States and 11 other countries that had, by then, ratified the convention. During the past year, another nine countries have ratified, bringing the total to 21. So for the first time in history, there are 21 countries that have laws that make it a crime for their citizens to bribe a foreign government official to obtain or retain international business. In addition to this, there is a rigorous monitoring mechanism, something we think is the key to effective enforcement, that is up and running. This is the only anti-corruption treaty in the world that has a functioning system of peer review. Already the domestic laws of 16 countries have been reviewed. Soon, the participating countries will begin a new phase of monitoring that will focus on the enforcement of laws. In practice, what will make the biggest difference is the day-to-day activities of businesses themselves who, in the United States, have introduced very strong internal controls to ensure compliance. Overall, the progress that has been achieved in the OECD anti-bribery convention is a tribute to the strong bipartisan support for it in the United States and also the steadfast backing of the U.S. business community. Despite this gratifying progress, we are concerned, as Secretary Albright stressed in her recent speech in Davos [World Economic Forum] about lagging implementation. Thirteen signatory states still have not ratified the convention and they include Argentina, Brazil and Chile, Denmark, France, Ireland, Italy, Luxembourg, Netherlands, New Zealand, Poland, Portugal and Switzerland. France is currently considering legislation but the draft text that we have seen would appear to grandfather future bribes if companies said that those bribes had been promised in the past. That would appear to be a big loophole. Furthermore, some countries that have ratified don't appear to have in place yet domestic legislation that would be adequate to meet their obligations under the convention. We are concerned that the United Kingdom is relying on a 1906 law, for example, that doesn't appear to cover acts of bribery committed outside the United Kingdom. And Japan's law appears to lack strong penalties and to suffer from significant loopholes. Finally, some signatory states may still allow tax deductions for bribes paid to foreign governments, foreign government officials, and we think this is a particularly objectionable practice that entangles a government's own administration as well as their taxpayers into the corrosive practice of bribery. I want to mention very quickly that we are combating corruption on a number of other fronts as well. Last February about this time, Vice President Gore hosted the Global Forum for Fighting Corruption here at the State Department. It was attended by representatives of over 90 countries. We have pushed for a strong anti-corruption initiative in the stability pact. We have encouraged the IMF and the World Bank to incorporate anti-corruption principles in their programs. We negotiated with our partners in this hemisphere an OAS convention against corruption and we are supporting a business-led transparency effort in APEC. We participated in the anti-corruption convention in the Council of Europe and we supported the African countries participating in the Global Coalition for Africa who have adopted some 25 anti-corruption principles. This global fight against corruption that is going on in all parts of the world will only succeed if we can cut off the source of bribes. The developed countries, therefore, do have to be a part of the solution, not part of the problem. So we do encourage all the signatories to the OECD convention that have not already done so to use the next six months to ratify the convention, to enact effective domestic implementing legislation, and to end the practice of granting tax deductions for overseas commercial bribes. Those are the basic points I wanted to inform you of in the status report but I would be happy to answer any questions. Q. Some countries permit deductions. Do you know how many? UNDER SECRETARY LARSON: A handful, and we are still trying to get a little bit more clarity on those that do. In a couple of cases, they are countries that haven't yet enacted the domestic laws that would make overseas bribery a criminal offense, and they would intend to end the practice of tax deductions at the same time. Q. Sir, where do the Asian countries, especially the south Asian countries like India, Pakistan, Bangladesh others stand as far as this report is concerned? UNDER SECRETARY LARSON: This is a convention that was centered in the OECD, although it was opened up to five countries that expressed particular interest in being signatories, and I'll see if I can pull those out. Argentina, Chile, Brazil, the Czech Republic and Slovakia, though they're OECD members. The Czech Republic is an OECD member now. Bulgaria is the other one. The convention remains open to other signatory countries. The OECD is also open to a process of cooperation with non-member countries that could help those countries strengthen their own domestic laws against bribery in commercial transactions and might help pave the way for them to become signatories and participants in this convention. Q. First, just to India, what is the gut feeling about the size of the problem? How big is it? UNDER SECRETARY LARSON: By its nature, it is something you can't gather very precise statistics on. It's my impression, based on the information available to us, that it is a problem that runs in the tens of billions of dollars a year and that, beyond the dollars and cents aspect of it, it is something that is a very pervasive problem for development and the strengthening of democratic institutions in many key countries that are right now in the process of trying to strengthen their democracies and grow their economy. So for that reason, we regard it as a very important issue. Q. Could you perhaps name one or two of the countries where it would be of a particular concern? I am thinking of Ukraine, for example, where corruption is viewed as endemic, even locally. UNDER SECRETARY LARSON: I am not -- I am going to shy away from sort of giving you a priority list of countries or a list of countries where we think that it's a particular problem because I think you know as well as I do where some of those countries are and who they are. What I think I can say is that most of the transition economies are economies that have relatively fragile and weak democratic institutions and where this type of problem is a serious problem. And some of the major developing countries that are trying to undergo democratic transformations themselves find that they are dealing with this problem as something that really weakens their efforts to turn things around. And that is why I say I think for us it is a major foreign policy priority because we do see it as a global problem and no part of the world is really immune from it. Q. What is the U.S. interest? UNDER SECRETARY LARSON: What's the U.S. interest? Q. Why do you care, unless it is a moral position, which sometimes compels U.S. diplomacy, not all the time. What is it? Are you sort of trying to level the playing field for American companies or what? What's your stake in this, the U.S. government? UNDER SECRETARY LARSON: I think the U.S. government has three important stakes in this problem. One is that we believe it is a foreign policy priority for us to promote democratization, and we think that corruption directly erodes the strength of democratic institutions, particularly in some of these countries that are trying the hardest to establish those institutions. Two, we think that corruption saps the development potential of countries as well. It causes mis-investment, it pulls resources from areas like health and education where it could be well spent, into less effective uses. And, third, we do think that it has a very corrosive effect on the international trade system as a whole. Part of that, to be sure, is that it does tend to create an unlevel playing field, but also a very uncertain playing field. And we think that if the international trade system is going to be one that inspires confidence, then we have to make sure that trade is conducted on a clean, open basis. Q. (Inaudible) with the -- (inaudible) - Romanian daily newspaper. I'm wondering if you have something on Romania and if the United States has any concerns regarding the corruption in Romania, and what do you think about their fight, the Romanian Government's fight with corruption? UNDER SECRETARY LARSON: Well, we think that it's very important that all of the Stability Pact countries, those from the region of Southeast Asia as well as those from outside that region that are trying to work with them, have identified this as an issue that needs to be addressed in all aspects of the Stability Pact. It's certainly essential to address it if one is going to hope to attract foreign direct investment in significant quantities to this region. But it's also important for the other reasons that I was mentioning just a moment ago. The importance of it as a way of strengthening -- the importance of an effective anti-corruption program as a way of strengthening democratic institutions. So we're glad that the Stability Pact countries have seized this as a major issue. Q. (Inaudible) - Russian News Agency Tass. Mr. Larson, what is your assessment of the development in Russia in terms of spreading of corruption as well as the anti-corruption measures being taken by Russian authorities? Do you see any progress? UNDER SECRETARY LARSON: I think it's a very important issue in Russia, as it is in most other sort of major countries in transition. I think that one of the more important steps that can be taken is to put more and more decisions into the marketplace and out of the hands of the government bureaucracies. And so toward that end, we think that the structural reform measures that the government is pursuing, those measures that are part of the IMF and World Bank programs, are very helpful. They're not primarily anti-corruption initiatives; their motivation is based elsewhere. But because of the way that they'll strengthen shareholder rights, improve the investment climate, advance the privatization of the Russian economy, they can make a very important contribution to the solution of this problem. And I think that further progress in this direction will, in Russia as in other parts of the world, be very important as part of a policy of encouraging significant amounts of investment, domestic as well as foreign investment. Q. Sir, corruption is mostly the main business of these countries' upper level government officials and also most of the business. And how can you expect their cooperation, when you are trying to kill their income or their business? UNDER SECRETARY LARSON: Well, what we have found is that government leaders at the top see this as such an important issue for the welfare of their countries that they are not only ready but they are eager to work with us on these problems. It was interesting, when the first Summit of the Americas was held a few years ago in Miami, there was some thinking within our administration that dealing with the issue of corruption was something that ought to be done but we wondered, you know, would we be seen as heavy-handed in raising it. As it turned out, it was the other countries that insisted that it be raised because they saw it as something that, if they didn't raise it and try to work with partners in the hemisphere to address it, it would undermine their own credibility. And this is why, I think, that 90 countries were prepared to come to the United States to participate in the conference that the Vice President sponsored here at the State Department last year. It has become such an important issue that you can't afford not to address it. Now, one element of addressing it has to be to address some of the problems that you identified. For example, having a well-trained, adequately paid civil service is a part of an effective anti-corruption strategy, just as is having an economic policy that, as much as possible, emphasizes competition and keeps as many decisions as possible in the market rather than have them be decisions that are made by arbitrary -- by arbitrary decisions of government officials. So I think, you know, to be sure, you are not going to solve this problem without addressing what you rightly raise. But the way to attack it, I think, is to make sure that government employees, particularly those that have authority over the awards of contracts and things like that, are well trained, adequately paid, and certainly well-supervised. Q. I wonder if I could change the subject for a second? On Friday, Colombian President Pastrana said he was going to ask the U.S. for membership in NAFTA. I just wondered if the State Department had heard from him formally and, if so, what the prospects are for that. UNDER SECRETARY LARSON: We're here for the corruption issue. He will take it. Q. One more (inaudible) in the developing Asia today, one. Now, two, are you planning to have some kind of resolution through the UN as far as international bribery cases are concerned in the future? And, number two, the countries who are not part of this report or have not signed, how are you going to enforce or look at their aid or relations will affect the U.S.? UNDER SECRETARY LARSON: First of all, right now, as I summarized briefly, there is an impressive range of initiatives at the regional level going on all over the world and I think because tackling this issue effectively is a grassroots issue, in part, it is very important to nurture those regional efforts. Secondly, there was a United Nations General Assembly resolution on this subject a few years ago when Secretary Albright was our Ambassador to the United Nations. That certainly has provided the foundation for UN interest in this issue. There is, I think, some discussion that has not yet reached the point of decision about whether there should be some more formal arrangement or agreement under UN auspices. Right now, I think that the most important thing, though, is to make sure the things that we are putting in place actually work. And that is why we did take the time to structure this particular briefing primarily about the OECD instrument, because we want to make sure that this convention is implemented in an effective way, that it's something where there is an adequate monitoring process, where countries actually enact the laws that they're committed to and, more importantly, that they enforce them. Q. Can I ask, given the state of many of the countries that you've mentioned and how badly paid civil servants are and how far those countries are from actually paying those people realistic amounts of money, how worried are you that implementing these kinds of regulations might actually act as a disincentive to investors wanting to operate in those countries? UNDER SECRETARY LARSON: I really don't think that is a serious concern. First of all, we have operated, the United States has operated under the Foreign Corrupt Practices Act [FPCA] for more than 20 years and we have found that it -- we have been able to invest in trade around the world and comply with our obligations under this treaty. So I don't think that -- I think in a way this helps investment in developing countries. One of the things our businesses tell us is that, while they had some difficulty with the FCPA in its early years, as they got more familiar with it, they were simply able to say when they were in a country and a bribe was solicited, they could simply say, I can't do that, my government will prosecute me and put me in jail if I do that. And that it just drew a line that was very important for them to draw. Now, I think that as you have the bulk of the major industrial trading and investing countries adopting these same disciplines, that this will simply improve the situation because it will take off the table an issue that really needs to be taken off the table. Q. Can you update the figure that appeared last June of losses to American companies? The figure last year was estimated at $24 billion over five years. UNDER SECRETARY LARSON: As I said in response to the other question about this, I think it is very, very hard to come up with precise numbers about the types of losses that we have had. I am comfortable in making the guesstimate that the size, the dimension of this problem, is in the tens of billions of dollars. But it is not something that lends itself to great specificity and I think it can be misleading to try to start trying to give to a certain number of decimal points, you know, the size of the problem. Q. How could such a figure be arrived at, because how would anyone know that if the corruption didn't exist an American company would get the contract? Maybe some other company would get the contract. How do we know that the American company would be first in line to benefit if this problem was eased, cleaned up? UNDER SECRETARY LARSON: Precisely for the reason that you're giving, that I'm giving a very general number here. It also is the case, of course, that on many of these major contracts, there aren't that many bidders. So even if you make an arbitrary assumption that, you know, United States will get its share or proportionally will win a third of them or something, you can come up with numbers. But I do think it's a little bit of a distraction and that's why I have shied away from giving you a specific number today. Q. So what kind of sanctions and devices are going to be used in combating corruptions? UNDER SECRETARY LARSON: Well, under the Foreign Corrupt Practices Act, if someone is found to have -- if an American citizen, American company or American business executive is found to have violated it, he can be prosecuted criminally, he can be put in jail, the company can be fined. So the usual penalties include fines and jail and each country in the OECD has a somewhat different legal tradition. And because of the different legal traditions, the precise penalties each country would impose differ. I mean, the penalties themselves are not set in the convention. What is required by the convention is that they be dissuasive, that they be high enough that they would persuade any reasonable business executive that it's smarter to comply with the law than to risk the punishment. Q. The convention is only a year old. Do you have any sort of early report card on convictions or arrests or legal action based on these laws? UNDER SECRETARY LARSON: No. The stage we're at now is the stage of monitoring the adequacy of the laws themselves, the laws that the 21 countries that have become participants in this convention have put in place. And the next stage is to really get to the question that you're raising -- you know, how adequately are the laws being enforced. One thing that, even though this process is down the road, I would highlight and stress right now is that it is not -- the right yardstick is probably not how many prosecutions have there been. I mean, to be sure, we will hope and expect that there will be prosecutions, but the reason these laws work is because businesses don't want to be prosecuted and they bring themselves into compliance. And, you know, here in the United States we've had prosecutions, executives have gone to jail, but I believe that the fundamental reason why the FCPA has made such a big effect is that businesses have seen the law, they've seen the costs of being found in violation of the law, and they have therefore implemented extraordinarily rigorous internal controls to make sure that their employees don't get on the wrong side of it. I think the real test of the law will be the extent to which countries of some of these other countries that have just recently signed onto these disciplines impose that same sort of discipline on themselves, the internal controls. If that happens, the bulk of the job will be done, irrespective of the number of prosecutions. But, you know, we will have to be watching in the future whether there are prosecutions and enforcement. Q. Sir, if I am correct, if the one U.S. company paid the bribery for to get the international contract and they had a tax relief, are you planning to change this tax code? UNDER SECRETARY LARSON: That doesn't exist in the United States. Again, we have had in the United States for over 20 years a law that made it a crime for American companies to pay bribes to foreign government officials in order to get business, and it has not been permissible for American companies to take tax deductions for bribes that have been paid. If they had reported that they wanted a tax deduction, it would have quickly come to the attention of the Justice Department, and so that hasn't happened here. In other countries there has been a practice of permitting tax deductions for bribes paid overseas and we are working very hard to end that. We have made substantial progress in ending that, and I hope by the time this year is out we will have ended it completely. Q. Mr. Larson, you might be familiar with the investigation on Russian oil company, Tyumen Oil Company. Could you tell us, if I'm not mistaken, at the end of last year two -- both sides, BP Amoco and Tyumen Oil Company have narrowed their differences and reached a deal. Nevertheless, ExImBank is still unable to provide loan guarantee for Russian company. Was there a specific reason for that? Thank you. UNDER SECRETARY LARSON: You're referring to the decision that the Secretary of State made in December to request the Ex-Im Bank, under the authority of the so-called Chafee Amendment, to delay approval of two loan guarantees that would have financed the sale of oil field equipment and refinery equipment to a Russian company. At the time that that decision was made, it was stressed that it was a delay designed to give the government time to look into certain concerns and certain allegations. That process of review has been going on very intensively since the end of December but I don't have anything further at this point about where that process stands, except to say that the review is going on, going on very intensively. And it was -- again, the decision itself was seen as a delay to look into some things rather than a denial. Thank you. (end transcript) (Distributed by the Office of International Programs, U.S. Department of State. Web site: usinfo.state.gov)