When Secretary of State Hillary Clinton spoke to African heads of state at the AGOA Forum in Nairobi this week, she echoed President Obama’s speech last month in Accra in which he stated that good governance and transparency are of critical importance to increasing investment in Africa.
Unusually for a Forum designed to promote trade and investment, one panel was dedicated to good governance. Justice Aaron Ringera, Director of the Kenya Anti-Corruption Commission, Dr. Nelson Githinji, President of the American Chamber of Commerce and I spoke on the subject of “Addressing Good Governance and Enabling the Investment Environment.” The panel was introduced by William Craft of the U.S. State Department’s Bureau of Economic, Energy and Business Affairs. In a country in which everyone complains about high levels of corruption, but no one has been prosecuted in more than two decades, frustration and cycnicism run high. The goal of the panel was to briefly outline concrete, practicals steps that can be taken in Africa and elsewhere to improve transparency. For governments and companies seeking to reduce bribery, we hope this Forum will mark the beginning of a long and practical discussion. My remarks are attached, below.
The 8th Annual African Growth and Opportunity Act Forum
Nairobi, Kenya
August 4th – 6th
Addressing Good Governance and Enabling the Investment Environment
Alexandra Wrage, President, TRACE
I am delighted to be here today and, in particular, to be sharing the podium with colleagues so committed to this important issue.
As we have just heard, anti-corruption efforts must be a priority for all governments and are increasingly so for most. Corruption is a borderless crime; it is felt across borders just as disease, terrorism and environmental devastation are.
Corruption is theft, whether the person enriched steals directly from a nation’s coffers or indirectly, — by accepting payments to look the other way while shoddy goods are sold at inflated prices.
We all understand the damage that corruption does: buildings collapse because of corruption, counterfeit or tainted pharmaceutical products are introduced into the market because of corruption, environmental waste can be disposed of inappropriately if the right person is bribed and a nation’s customs, police and judiciary can be bribed to work against their citizens’ best interests.
Those who offer or pay and those who demand or accept bribes are equally culpable. Bribery is a moral issue, as well as a criminal one, but it’s also a business issue. The scope of corruption is an unavoidable component in the analysis of any larger investment decision.
No country is immune from this problem, but some have experimented with systemic controls that have brought considerable improvement. These countries have reaped the benefit of greater foreign investment. Capital, as we know, is cowardly. It will gravitate to stable, transparent and predictable markets. Corruption is a tax on both the citizens of the country whose officials sell their public offices for private gain and the businesses that operate there. For this reason, happily, well-run businesses and responsible governments will always be on the same side of this issue.
TRACE works with and advises governments on practical steps that can be taken to reduce the opportunity for bribe-tainted transactions. We also work with over 150 multinational companies and over 1000 SMEs operating in almost every country to ensure they are implementing “best practices” in this area. While everyone likes to believe that their situation — their country, their industry or their company — is unique, we find that the corrupt are a pretty unimaginative crowd. They flourish in dark corners when no one is watching. They succeed when procurement processes are opaque, when official processes are unpredictable and when there is no accountability.
I’d like to propose ten things that can be done to reduce the opportunity for bribe-tainted transactions. Six can be implemented by governments and four by the private sector. Like bribe-takers themselves, these are not especially imaginative or new but, taken together, these would have a real and immediate impact on levels of corruption.
First, reforms by government:
1. Pay adequate salaries for junior civil servants. It isn’t possible to address corruption amongst entry level civil servants if they are paid little or nothing and expected to be “entrepreneurial” and to earn their pay on the side. A strong, disciplined, competitive civil service is a prerequisite for all other anti-bribery measures. If companies are already paying customs officials on the side to process their shipments, a tax is already in place. It brings order and predictability to the process when governments formalize that tax, collect it officially and enable companies to account for it appropriately. The companies with which we work recognize that they can be a burden on the infrastructure of some developing countries and don’t object to paying their share. To pay it “under the table”, however, creates a legal risk, erodes corporate governance and exposes the employees to more and greater extortionate demands. Currently, visa fees defray the cost of consular services for all countries, – worldwide. Legitimate expediting fees can be paid to some government agencies for priority service. This model can be expanded so that services for which companies are currently taxed informally – and illegally – can be formalized.
2. Accede to, implement and honor the commitments under international anti-corruption instruments, including the African Union Convention on Preventing and Combating Corruption and the United Nations Convention Against Corruption. Countries often rush to ratify and then fail to implement, breeding cynicism in the community and undermining a potentially powerful tool for international cooperation on mutual legal assistance and asset recovery.
3. Reform procurement processes. This is a complicated area, but there are some simple improvements: for basic goods, make use of automation in procurement to reduce the interaction between the seller and the government official and implement a two-tiered procurement process (separate competitions for price and quality) for highly technical goods.
4. Reform judicial administration. Use automated case assignments to reduce judicial discretion, prohibit the selection by judges of their own cases and prohibit ex parte communications, – private meetings between the judge and just one party to a case.
5. Develop and advertise a robust reporting mechanism and whistleblower protection program. Make available to the public hotlines and web-based reporting tools that permit both confidential and anonymous reports of corruption, whether demand-side or supply-side and protect those who use them. TRACE hosts www.BRIBEline.org, a multi-lingual, international web-based reporting tool available to everyone; reports by country are posted on the same website.
6. Finance, staff, support, train and protect an independent anti-corruption commission. Too often, anti-corruption commissions are supported with great fanfare until they become successful and then support vanishes.
Reforms by the Private Sector
At TRACE, we work with both governments and the private sector and each constituency is keen to explain that their hands are clean and that the problem lies with the other side. But without a payer, of course, traditional cash-for-business bribery would come to an end.
Well-managed companies can take clear steps even in very challenging markets to minimize the opportunity for employees to make inappropriate payments.
7. Adopt and communicate a clear anti-bribery policy. Ensure that employees know where to find it and who to ask if they have questions about it. TRACE has model language available; it needn’t be dense and legalistic. In fact, that should be avoided. Make it accessible to the non-lawyers who will need recourse to it and make it available in multiple languages.
8. Work with well-vetted local partners. Don’t stake your company’s reputation and governance on a local partner about whom you know nothing. Check references, verify expertise and investigate any ties to the government and to individual government officials. Are they financially stable? Do they have the resources to support your marketing efforts in-country? If not, what exactly are you paying for? Will they be paid on a fixed fee or contingent basis? Are there large or last-minute expenses you don’t fully understand? Expenses that are poorly documented? Check it out.
9. Train employees and third parties on the gray areas. In a sophisticated global market, few employees need to be told that sliding a briefcase of cash across the table to a government official in exchange for a contract is illegal. Increasingly, bribery takes place in the gray areas. When is a gift too extravagant? Hospitality too lavish? Is it a bribe to hire the daughter of a government customer at his request? To assist the son of a senior procurement official to complete his application for university in the United States? To ensure the company’s scholarship program extends to him? If a government official asks for something, is it – by definition – an inappropriate gift of value? Make company lawyers or compliance officers available to answer questions during and after training.
10. Audit and enforce. Sending a message that some bribes – perhaps small bribes – are acceptable in some circumstances will undermine a company’s whole program. A company cannot choose to follow its own policy except when so doing is difficult and hope to have any credibility with its employees. Some markets are more challenging than others. It is in the most challenging markets that a “zero tolerance” policy is needed most. Otherwise, you’ve invested in a message that can be eroded by any bribe-taking government official with stamina; they just need to have more patience than your employees.
The best, most talented employees will gravitate toward well-run companies. Consumers prefer to patronize reputable companies. There really is a “reputational dividend” for companies that operate in a clean, transparent and responsible manner.
But these companies seek transparent markets. Markets in which the procurement process is clearly communicated and consistently honored; markets in which needless barriers aren’t designed to provide opportunities for junior officials to create and skim an additional “tax”; in which contracts are enforced without interference from corrupt judges; and in which goods can be moved through customs without artificial delays designed as carefully and permanently as toll booths.
The companies we work with are ready to forge ahead with real change in this area.
Many of the governments represented in this room have shown similar determination.
I look forward to hearing of the real, measurable progress that this shared commitment brings between now and the 2010 AGOA Forum.
Thank you.
