Journal of Commerce / June 4, 1998
By Larry Luxner
WASHINGTON -- As 34 heads of state gathered in Santiago last month (April) to kick off negotiations toward a Free Trade Area of the Americas by 2005, they also discussed regional efforts against drug trafficking, money laundering and illicit enrichment.
It would have been hard to find a more appropriate place in South America for such talks, since experts now view Chile as the continent's cleanest country when it comes to graft and bribery. In its 1997 Corruption Perception Index -- the most widely accepted measure of such things -- Berlin-based Transparency International gave Chile a 6.05 on a 1-10 scale, followed by Uruguay (4.14), Brazil (3.56) and Argentina (2.81).
At the bottom of the ranking is Venezuela, where on Apr. 15 a Caracas court ordered former President Carlos Andres Perez put under house arrest. The charge: illegal enrichment and embezzlement.
"Many anti-corruption initiatives are underway, but the rhetoric will continue to exceed the reality," predicts Jerry Haar, an economist with the University of Miami's North-South Center. "The OAS convention was pushed by Venezuela, which is the living laboratory of corruption."
Ecuador, often viewed as the most corrupt country in Latin America, for some reason didn't appear on this year's list -- even though its president, Abdala Bucaram, was ousted last year in connection with massive bribery charges. Several years earlier, Vice-President Alberto Dahik fled the country after he was linked to a secret state fund; Dahik was eventually given political asylum in Costa Rica.
"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 regional expert Michael 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 a long-running scandal involving International Business Machines Corp. 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."
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.
He applauds recent moves by the Organization of American States and the Inter-American Development Bank to toughen its procurement policies. New language in the bank's procurement rules and procedures make explicit what had previously been implicit, and also gives the IDB the right to take the following steps:
* Temporarily or permanently bar firms or individuals from future contracts if they are shown to have been involved in corrupt practices.
* Cancel or accelerate repayment of a loan or grant if there's evidence the borrower or beneficiary has not taken adequate steps to halt corrupt practices.
* Require that bidding documents include provisions that allow the IDB or its representatives to audit the records of suppliers and contractors participating in IDB-financed projects.
* Accept "no bribery" pledges at the request of borrowing countries that commit contractors to comply with laws prohibiting corrupt practices in the country where the contracting takes place.
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 were among executives who spoke at the recent "Latin American Transparency Conference" in Mexico City. The late April gathering, co-sponsored by Skol & Associates and Latin Trade magazine, focused on regional efforts to combat money-laundering and bribery in business dealings.
Also at the meeting was Peter Eigen, chairman of Transparency International.
"The media's focus is on developing countries when reporting on the Corruption Perception Index because corruption is perceived to be greatest there," Eigen said. "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.
Also, 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.