The Miami Herald / March 16, 1998
By Larry Luxner
WASHINGTON -- In the latest "corruption index" compiled by Berlin-based Tranparency International, four Latin nations -- Venezuela, Mexico, Colombia and Bolivia -- rank worse than Argentina when it comes to corrupt politicians, dishonest private executives and judges on the take.
That's little consolation, however, for International Business Machines Corp., whose Argentine subsidiary remains embroiled in one of the most embarrassing scandals in years involving a U.S. company doing business in Latin America.
IBM -- ironically listed as one of Transparency International's 29 corporate benefactors -- is being accused of bribery in connection with a $249 million contract to modernize and install computers at all 525 branches of state-owned Banco de la Nacion, Argentina's largest commercial bank.
For over a year now, both the FBI and the Securities and Exchange Commission have been investigating whether IBM violated the Foreign Corrupt Practices Act, which prohibits U.S. companies from bribing foreign officials.
"When you have an American company accused, there's no impunity," says regional business expert Michael Skol. "When is the last time you've heard of a French or German company being investigated by its government for bribery?"
Skol, a former U.S. ambassador to Venezuela, recently formed his own Washington-based consulting firm -- Skol & Associates Inc. -- to specialize in the growing field of "corporate ethics." Among his clients are the Colombian Banking & Financial Entities Association (Asobancaria), for whom Skol acts as a liaison with various U.S. federal law enforcement agencies in anti-money laundering efforts.
"Corruption is now the No. 1 political issue in Latin America today," attracting more attention from voters and the media than violent crime, poverty or unemployment, says Skol. "Now, with the democratization of Latin America, not only are [corrupt] presidents being impeached, but their parties are not being re-elected."
Adds Eduardo Buso, Miami-based general counsel for the Latin operations of General Electric: "Obviously, the boom in Latin America has been the trigger, fueled by privatization, which in turn can generate even more concerns in terms of corruption. While in theory privatization takes any opportunity for personal gain by state officials out of the transaction, in practice that it isn't always the case."
While the IBM scandal has attracted a lot of attention in Argentina, experts agree that Latin officials are more frequently bribed by European multinationals than by U.S. companies. Skol says that's because "for 21 years, the United States has been the only country in the world that's criminalized transnational bribery. It is illegal for a U.S. citizen to bribe a foreign official. In every other country, it has not only been legal, but in 14 countries, tax-deductible."
Buso says that GE -- which reports annual Latin revenues of $5 billion -- has lost major infrastructure deals to European firms because of bribes, though he declined to name either the companies or countries involved. "Our exhaustive analysis of the bid documents showed we were clearly not only compliant with the documents but that we had the best economic offer, and still we were not selected."
Both Skol and Buso are among executives scheduled to speak at the upcoming "Latin American Transparency Conference" in Mexico City. Set for April 27-28 and co-sponsored by Skol & Associates and Latin Trade magazine, the meeting will discuss regional efforts to combat money-laundering and bribery in business dealings.
Among those invited are Mexican President Ernesto Zedillo, Guatemalan President Alvaro Arzu and Peter Eigen, chairman of Transparency International, whose 1997 ranking of 52 countries worldwide showed Costa Rica and Chile to be the least corrupt countries in Latin America, and Bolivia and Colombia to be the most corrupt.
"The media's focus is on developing countries when reporting on the Corruption Perception Index because corruption is perceived to be greatest there," says Eigen. "But I urge the public to recognize that a large share of the corruption is also the product of multinational corporations, headquartered in leading industrial countries, using bribery and kickbacks to buy contracts in the developing world."
Skol says the two greatest areas of corruption in Latin America are procurement and customs evaluation.
"Let's say you're in Gemrany and you ship an electric generator to Ecuador. You claim it's worth $500,000, and the importer claims it's worth $500,000, so he pays customs duties on that. But in fact it's a $5 million item. So how does the inspector at the port of Guayaquil really know, especially if somebody bribes him? There are now on-line customs evaluation services that can tell him exactly what a given product is worth."
Another positive sign is the 1996 signing of the Inter-American Convention Against Corruption, which is now in the process of being ratified. This convention mandates signatory nations to criminalize transnational bribery and illicit enrichment, protect whistleblowers and expand multilateral cooperation on criminal investigations.
In December 1997, members of the Organization for Economic Cooperation and Development and five non-members including Argentina, Brazil and Chile signed the OECD Anti-Bribery Convention, which criminalizes bribery of public officials.
According to the experts, here are some steps U.S. businesses can take to avoid getting sucked into bribery scandals:
* Make sure your local joint-venture partners are clean -- that is, not involved in corrupt practices themselves -- and that they know you won't support anything that violates the Foreign Corrupt Practices Act.
* Find out as much as you can about the country you're investing in. In some countries, you can appeal to a vice-minister or the equivalent of the General Accounting Office. In others, you must go directly to the president to resolve major problems.
* Keep the U.S. Embassy informed of what you're doing.
* If you don't have the kind of local presence that's necessary, make sure you get that presence.
* Avail yourself of "credibility services" offered by specialized consultants, such as procurement services, customs evaluations, anti-money laundering systems and pre-shipment inspection monitoring.
"We in GE actually bring in our joint-venture partners and put them through the same corporate training our own employees go through," says Buso. "We contractually bind them in the agreement to follow our integrity guidelines. If those guidelines are violated, that's just cause for termination of the contract."