Nobody gets hurt?
TABLE OF CONTENTS I. INTRODUCTION II. GREASY WHEELS? A. Sand in the Wheels: Bribes Create Incentives to Increase Regulation B. Bribes Destroy "Rational" Markets 1. Wrong Project, Wrong Competitor, Low Quality Control 2. Regulations Harass Competitors and Restrict Market Entry C. Shanghaied III. GREASY DEALS A. Greasy Partners, Slippery Terms, and Messy Exits B. Meet the Professionals: Transnational Criminal Organizations IV. Toxic GREASE A. Facing Victims B. It is Not My Fault C. More Than "Inconvenient" Harm V. NOT EVERYBODY IS DOING IT: CARROTS AND STICKS
Bribery is sometimes justified on the grounds that it greases the wheels of excessive government regulation, and that no real harm is done by it. It is not that bribery itself is actually a good thing, or even that bribery is morally justified. In this worldview it is not that bribery is right, but rather that bribery is necessary. Bribery is practical, bribery helps business, bribery is how the real world works. Everybody does it and nobody gets hurt.
This article examines the assumptions underlying a practical business worldview that tolerates bribery. Is anyone getting hurt by bribery? If so, who are they? What specific harms, other than moral outrage, do victims suffer? Is everybody really doing it?
Although the focus of this article is not on the moral aspects of bribery, moral outrage is a factor that practical business realists should consider. Condemnation of bribing public officials is a universal (1) value expressed in human cultures throughout various periods of history going back to the Code of Hammurabi's prohibition on bribing judges. (2) Moral outrage against bribery is not limited to European-derived Judeo-Christian cultures. "The Apostle of Allah (peace be upon him) cursed the one who bribes as well as one who takes bribe." (3) China, (4) Russia, (5) and India (6) all criminalize bribery of public officials. Many Nigerians are deeply troubled by bribery while still engaging in it themselves out of perceived necessity. (7)
Widely shared moral outrage, especially if based on religious doctrine, can become a "crusade" or "jihad." Indeed some opponents of bribery call for reform in those terms. (8) Widespread popular revulsion against perceived systemic corruption can destabilize even well-established powerful global institutions, as the world discovered in 1517. (9) For practical business people, crusades or jihads destabilize markets and generally undermine consumer confidence.
While acknowledging both moral dimensions and the dangers of public outrage in the bribery problem, this article approaches the topic from a different perspective. This article addresses the assumptions of pragmatic business realists and policy-makers in terms that are more likely to speak to them directly: money. The topic is also narrowed from "corruption" (10) generally to the more concrete legal prohibitions against international bribery found in U.S. law, the Foreign Corrupt Practices Act (FCPA). (11) Domestic laws of all Organisation for Economic Cooperation and Development (OECD) (12) member states, including the United States, now prohibit bribery of foreign officials by their corporations doing business abroad.
The article examines the issue of whether any real harm is being done by multi-national corporations (MNCs) bribing foreign government officials to do business abroad. The central question is whether anybody is getting hurt. Approaching this question deductively from three perspectives--macro-economics, business transactions (microeconomic) and consumer/environmental--the article concludes by briefly examining practical strategies for strengthening legitimate businesses' abilities to compete in a fair and rational competitive market.
II. GREASY WHEELS?
Bribes "grease the wheels" of excessive government regulation. This is the classic older formulation of why bribery is tolerated as a practical business necessity. In this view, bribery is sometimes actually a good thing in terms of economics because it makes cumbersome government bureaucracies work more efficiently. Market efficiency is the most significant value, and bribery is just the sadly necessary mechanism to avoid political bottlenecks.
This argument became fashionable (13) in the 1960s. (14) Often known as the 'contrarian' view, its primary architects' "first instinct was to applaud rather than condemn" bribery (15) on the grounds that it opened market access in heavily regulated closed bureaucratic economies.
Occasionally modern contrarians are found too. (16) The older contrarian view is largely discredited by more recent as well as vastly more extensive economic research, which demonstrates that using bribes replaces political inefficiencies with the inefficiencies caused by a lack of competition. (17) Accepting, arguendo, the argument that efficiency of markets is the single most important value, (18) modern economic research demonstrates in excruciatingly specific detail (with competing mathematical formulas and databases) that market efficiency is not only harmed by excessive government regulation, market efficiency is also harmed by lack Of competition.
A. Sand in the Wheels: Bribes Create Incentives to Increase Regulation
As Judge Posner observed, "Governments operate with reasonable efficiency to purposefully attain deliberately inefficient goals." (19) While ascribing purposeful intent to governments' inefficiencies might appear paranoid, when analyzing bribery, this observation is right on the money.
For non-economist lawyers, it may be helpful to understand bribery using an analogy. Think of the relationship between bribes and government regulation as an eco-cycle. Excessive government regulations cause practical business people to bribe government officials to avoid regulatory bottlenecks. The government official accepts the bribes and returns the favor by reducing the regulatory obstacles for the bribe-giver. It is analogous to throwing garbage out the car window or dumping it in the ocean. The problem is "gone, now that it cannot be seen it anymore. For those adopting the older contrarian view, the eco-cycle stops here. Bribes reduce regulation--the garbage is gone--problem solved.
Modern economic analysis continues to examine what happens after a successful bribe-transaction. What does a rational, self-interest-maximizing (and now corrupt) government official who has just been bribed to reduce regulation do? He looks for economic opportunities to maximize his economic self-interest--that is, how to get more and bigger bribes. He knows that practical business people will pay good money to avoid regulations, so the obvious way to get more and bigger bribes is to create more and bigger regulations, and wherever possible to seek bigger, deeper business pockets.
This describes the first phase of the self-reinforcing eco-cycle of bribes and regulation. Regulations generate bribes; bribes generate more regulations.
The first piece of rebuttal evidence to the contrarian 'grease the wheels' and tolerate bribery view comes from extensive modern economic research which demonstrates that rather than avoiding excessive government regulation, bribes create market incentives for officials to increase regulation. (20) Rose-Ackerman, a leading analyst of the economic impact of bribery, examined both anti-bribery and bribery-tolerant economic studies. (21) The conclusion is that even routine corruption to avoid regulation is not tolerable because it "may give officials an incentive to create more delays and red tape and to favor the unscrupulous and the well-off." (22) Johann Graf Lambsdorff (23) is another leading modern economist rejecting the contrarian view that greasing the wheels through bribery reduces government regulation. He describes a number of specific case studies in various countries where bribery created incentives for additional regulation, for example the Pakistani gold trade, taxi licenses, and the Nigerian barite trade. (24) He also summarizes a considerable number of additional economic studies supporting the view that bribery increases regulation. (25) Tariffs, customs fees and trade barriers studies provide additional examples of the self-reinforcing cycle of bribery providing incentives to create additional new regulations. (26)
Lambsdorff explains, "There is therefore consensus nowadays that corruption does not 'grease the wheels,' as suggested in some older pieces of literature. For a recent empirical assessment, see Meon and Sekkat (2005). (27) Corruption does not help to overcome cumbersome regulation but acts as an inducement to public servants to create artificial bureaucratic bottlenecks. Corruption acts, therefore, as sand in the wheels." (28)
Toke Aidt's (29) careful analysis of the development of 'grease' versus 'sand' debates in economics scholarship describes the ostensible short term benefit of greasing to reduce specific regulations as the "fallacy of efficient corruption." (30) Noting that the "critical point is that corruption and inefficient regulation are two sides of the same coin" (31) speeding while simultaneously providing incentives for additional regulations, Aidt also highlights the economic waste involved in rent-seeking government-jobs. (32)
Even De Soto (33) himself, oft-cited by old contrarians to support the grease-the-wheels view, concludes that excessive bureaucratic regulation was largely motivated by the desire to generate corrupt revenues. (34) Modern contrarians Meon and Weill, while rejecting the sand in the wheels conclusions, also describe a policy allowing corruption to grow unchecked as "extreme" and "risky." (35) Even for modern contrarians, the key factor is the time frame. "[A] country that would let corruption run rampant may find itself stuck later on with an even worse global institutional framework, and thus end up in a bad governance/low efficiency trap." (36)
The key variable is the timeframe in which economic data is measured. (37) "[C]orruption, theft and rent-seeking often feed on rents generated through unsustainable use of natural resources or through under-investment in human and manufactured capital." (38) An isolated snapshot may find bribes temporarily increasing efficiency (assuming, arguendo, that narrowly defined efficiency without regard to quality and safety costs are the sole goal). When we view the entire eco-cycle of bribery and regulations, however, we see temporary or localized efficiency gains ("fallacy of efficient corruption" (39)) evolving into inefficient market-destroying monopolies.
B. Bribes Destroy "Rational" Markets
The second major rebuttal to the contrarian grease-the-wheels view is that when government decisions are based on the personal greed of individual bureaucrats, the public interest is subordinated to private individual gain of officials who abuse public power. Focusing on bribery as an abuse of the agent/principal relationship, Rose-Ackermann describes bribery as involving "pathOlogies in the agency/ principal relation.., at the heart of the corrupt transaction." (40) Government officials (agents) breach their fiduciary duty to the public (principal) in favor of self-interest.
Instead of rational economic choices based on traditional market factors (e.g., price, service, and quality) with competition providing market discipline, bribe-based decisions involve personal gain of individual government officials as one, or perhaps even the major, factor. Personal self-interest (greed) of individual officials overrides judgments based on the best public interest value for the government spending.
Wasting taxpayer money is one obvious negative consequence of corruption. Government projects are selected based on bribe-getting opportunities for powerful officials, rather than what might benefit the country as a whole. The wrong competitors are chosen based on willingness to bribe rather than consideration of traditional rational market factors (e.g., price, service, quality). Quality control is undermined in favor of reducing regulatory costs for the bribe-giving business partner.
1. Wrong Project, Wrong Competitor, Low Quality Control
Often known as 'white elephant' projects, bribery provides incentives for officials to choose capital-intensive, technologically sophisticated and custom-built products and technologies. (41) Large, centralized, wasteful projects are selected because bribes are larger and easier to collect. (42) Officials need only to go to one, centralized big bribe-supplier instead of spending time and energy shaking down many small, local, decentralized bribe-suppliers. The economies of scale apply to bribe-getting as well as other economic transactions.
Bribery leads to the misallocation of government funds. Vital projects that are greatly needed and directly benefit citizens are ignored. Large-scale "vanity" or "white elephant" construction projects, natural resource extraction and military armaments purchases are three examples of preferred investment areas that are known to maximize bribe opportunities for corrupt government officials. Choosing to allocate government funds to these types of projects rather than competing areas such as education or basic healthcare delivery--which provide less centralized and smaller, less lucrative, less efficient opportunities for bribe-getting--is one major harm of bribery. (43)
Development economists have produced a plethora of individual national and systemic studies demonstrating the harms of over-investment in white elephant projects at the expense of basic economic development investments. (44) There is a strong correlation between perceived high levels of corruption and low economic growth. "High perceived corruption and low growth rates are associated, but the causation can run from corruption to low growth or from low growth to corruption or more likely, the causal arrow runs both ways, creating vicious or virtuous spirals. To complicate matters further, there are some cases of very corrupt countries that, nevertheless, have strong growth experiences." (45)
High levels of corruption and low growth are strongly associated, creating their own "iterative" cycle. (46) Corruption may not "cause" grinding global poverty in which billions of human beings are struggling to survive on less than one dollar a day in a linear sense. The economic data demonstrates that the relationship between corruption and poverty is not simple linear causation, but synchronistic. (47)
2. Regulations Harass Competitors and Restrict Market Entry
While it may be unfortunate that some countries are plagued with self-seeking corrupt officials who exploit their own countries for petty, personal, short-term gains, practical business people do not see how they could possibly be blamed for this problem. In fact, business people often see themselves as the victims of a corrupt system, not its cause; this is the heart of the problem. Business people, the bribe-payers, see themselves as double victims. First they are the target of shake-downs and extortion schemes by bribe-seeking foreign officials. Then they are the targets of very serious criminal prosecutions and civil sanctions at home in the U.S. or in other OECD member states. Business people are besieged by governments at both ends of many international transactions.
Of course business people view the problem in micro-economic terms. Their duty is to focus on individual transactions, maximizing short-term profits for their own shareholders. Yet some efficient business practices, dumping garbage in the ocean for example, are defined as illegal because of the perceived larger harms to society as a whole. Like our analogy to throwing garbage out of the car window or dumping it into the ocean, such business practices may be more profitable and easier with regard to individual business transactions. However, as a society we decided to create legal sanctions and cultural pressure to resist certain profitable and easy behaviors.
But, business people object, it is not the businesses dumping garbage in corrupt transactions. It is the bribe-seekers, the corrupt foreign officials, who create the harm. Business representatives are just responding to extortionate demands of foreign officials. Why punish the (business) victims?
The problem is that this view cuts off the analysis too soon without carefully examining the entire eco-cycle in a corrupted system. Looking at the entire cycle of bribes and regulations, it becomes clearer that, while some business people might be characterized as pure 'victims' of foreign extortion, others most certainly are active participants, colluding with their bribe-receiving foreign partners.
In fact, the relative power between bribe-seeking foreign officials and bribe-giving business interests may be very complex. "The extremes are kleptocracy [rule by thieves], (48) on the one hand, and state capture (49) by powerful private [business] interests, on the other. In some cases, concentrated power exists on both sides, and we have a bargaining situation similar to a bilateral monopoly [crony "capitalism"] (50) in the private market." (51)
Bribe-seeking foreign officials are not the only self-interest maximizers in this story. Business people also seek to maximize profits, and they are often innovative in their efforts. For a rational, profit-seeking (now corrupt) business person who has learned that bribes can be effective in reducing costly regulations, it is but a short step to the realization that bribes can also be used to raise costs and restrict market entry for one's competitors. (52) Raising costs and restricting market entry prevents competitors from cutting into the favored corporation's monopoly profits. Capturing the state--the regulatory, administrative and law enforcement officials of a government- by bribing higher-level officials is the mechanism used by the now-corrupt corporation.
"State capture occurs when, in contrast to mere bribe-making to secure access to a good or an exception to existing rules, interested parties exploit the malfeasance of officials to change the rules (laws, judicial rulings, or bureaucratic regulations). Rather than state officials and bureaucrats extorting business firms or ordinary individuals, powerful individuals or groups use material rewards or physical threats to reshape the state." (53)
Denver-based Newmont Mining's difficulties in Peru at the Yanacocha gold mine provides one specific example of a bilateral monopoly capturing the regulatory organs of a sovereign state through the use of bribes. The corporate goal is to restrict competition and alter judicial processes to obtain competitive advantages. In the initial stages of this saga, Newmont's officials believed that their French governmentowned partner (Bureau de Recherches Geologiques et Minieres) was bribing the notoriously corrupt Peruvian Fujumori regime to sell the French stake in the huge gold mine to an Australian company. Newmont then arranged to become "friends for life" with Fujimori's murderous right-hand man, Vladimiro Montesinos ("Rasputin, Darth Vadar, Torquemada and Cardinal Richelieu rolled into one"). Eventually, public release of tape recordings of these and other corrupt deals caused the Fujimori government to fall. The entire saga is found in the PBS/Frontline documentary The Curse of Inca Gold (2005), and in an article by Jane Perlez and Lowell Bergman, Tangled Strands in Fight Over Peru Gold Mine, New York Times, October 25, 2005. (54)
In this model, bribe-seekers and bribe-givers collude. The regulatory organs of a sovereign state are used as personal tools to establish and maintain personally profitable deals for insiders. The insiders include both select government officials and favored corporations--the "dynamic duo" of bribe-takers and bribe-givers. (55) Laws, regulations, and licensing procedures are used to harass competitors or restrict market entry; the market itself is no longer rational or free. In fact, there is no actual market at all. Government regulation is very high for outside competitors, while it is lowered via bribery relationships for insiders. The real harm here is lack of open market competition.
Economists characterize this dire situation as a 'bilateral' monopoly between the bribe-givers (favored businesses) and the bribe-takers (favored officials). (56) "'Grand corruption'--can be more deeply destructive of state function--bringing the state to the edge of outright failure and undermining the economy." (57)
The absence of competition destroys any possibility of an actual market, since competition is suppressed. Suppressing competition allows the monopoly of insiders to charge higher prices for lower quality goods and services while escaping taxes and fees. (58) Without a viable tax revenue base, the country is unable to provide basic services. (59) Successful bribe-givers are able to use their insider relationships with high-level government officials to reduce economic choices. (60)
Sometimes this situation is referred to under the misnomer "crony capitalism." Although there are most certainly "cronies," there is no "capitalism" in the sense of an actual market with competition. Economists refer to this as a "bilateral monopoly." Bilateral monopolies are actually the opposite of a notion of capitalism based upon open, competitive markets. What is actually occurring in a bilateral monopoly is business and government insider cronies colluding to loot the country. There is no actual market. This is not capitalism.
The third phase of the eco-cycle of bribery and regulation occurs when insider, favored bribe-givers have built successful relationships with insider government officials who can increase or decrease regulatory enforcement to help their bribe-supplier business friends. Waiving regulations for their well-connected bribe-suppliers, insider officials can raise regulatory barriers for pesky competitors. The rich get richer, elite government and business insiders profit, and any competitors are crushed or swallowed up. This is not market capitalism. In fact, it resembles a mafia-controlled state.
It would be helpful if U.S. and OECD member states' prosecutors could allocate scarce prosecutorial resources to target the most harmful forms of international bribery, where kleptocracy, state capture or bilateral monopolies have arisen. Enforcement efforts in the bribe-receiving nations often present insurmountable political difficulties, not only because of relatively less-developed local legal systems, but because these most egregious forms of corruption also involve the most powerful foreign officials, who are above the law inside their own jurisdictions. (61) Although U.S. and OECD member states do not assert jurisdiction over the foreign official bribe-takers, prosecution of the supply-side, Western, bribe-giving multinational corporations (MNC) would disrupt the cash flow supporting kleptocrats and their bilateral monopoly corporate cronies.
China provides an interesting case study into the relationships between bribery, market restrictions and inefficiencies. While Western economists have engaged in extensive studies, debates and analyses of the problems of kleptocracy, captured states and bilateral monopolies in a variety of nations, they seem to avoid discussing China, except in passing and from a distance. (62) There are undoubtedly a number of valid reasons, including lack of access to good data and a shortage of economists writing in English (63) who also have a deep understanding of Chinese language, economics and political culture. Indeed, there appear to be only a few books (64) in English specifically discussing corruption in China, despite China's significance in the global economy, the large number of U.S. and OECD corporations doing business in China, and its well-known problems with systemic bribery. China is also puzzling because its apparently very high growth rates (65) seem to undermine the thesis that high levels of corruption are associated with low growth. (66)
Professor Yasheng Huang, a political economist from MIT, has written extensively on this topic. His books, written in English, are very influential among younger Chinese reformers. (67) Professor Huang analyzes foreign direct investment (FDI) in China since the reform and opening-up (1980s). In his most recent book, Professor Huang engages in a massive analysis of raw data from the past three decades, much of it never before examined by Western economists, to analyze the rapid development of the People's Republic of China PRC's economy. (68)
Huang's data amply support the thesis advanced by modern Western economists that bribery provides an incentive for increasing government regulation and that bribery is used in practice by business interests to reduce competition through regulatory harassment and restrictions on market entry. Huang carefully examines a large number of specific Chinese regulations of the 1990s, which systematically disadvantaged and harassed domestic Chinese business enterprises (e.g., credit restrictions for domestic business, (69) suppression of informal finance, (70) and financial repression of domestic private enterprise (71).
Huang's thesis is that a "Shanghai Style" bilateral monopoly (crony "capitalism") distorted economic liberalization in favor of Foreign Direct Investors (FDI) and at the expense of indigenous Chinese entrepreneurs. (72) Top-level Chinese officials "wooed" multi-national foreign investors through the bestowal of tax breaks, (73) while at the same time disadvantaging domestic Chinese businesses through financial restrictions and regulatory harassment. At one point, for example, Shanghai department stores actually banned domestic products to make space for international brands. (74) More serious were the financial and tax regulations used to favor foreign investors and disfavor domestic businesses. (75)
Why would Chinese officials adopt regulations that favor foreign businesses while simultaneously enacting regulatory measures that shut off finance for disproportionately tax and increase regulation on their own domestic Chinese businesses?
Chinese policies favoring foreign investors over domestic business development are "often justified by the rationale that foreign capitalists bring financial resources and technology. This reasoning lacks both conceptual and empirical support ... China, for example, attracts a huge level of FDI in sectors that have very little technological content and in sectors where indigenous entrepreneurs are expected to possess superior know-how (e.g., herbal medicine)." (76) Regulatory favoritism toward foreign investors often resulted in fake or round-trip FDI, as indigenous entrepreneurs simply dressed up their products as 'foreign' to evade the regulatory restrictions. (77)
FDI was also wooed through the construction of industrial parks. Government interventions increased during the 1990s, favoring large, centralized, 'statist' projects. (78) Larger 'white elephant' projects, following the Pudong model, and the Maglev train in Shanghai, (79) involve massive land-grabs, which increased fifteen-fold over the past decade. (80)
"The most likely reason for the land grabs in the rural areas and forced evictions in the urban areas is corruption. Politically connected developers bribe government officials to acquire sweetheart deals on the one hand and to lean upon the coercive power of the state on the other- as the entrepreneur who gained the management rights to the new Xiuxhui [Silk] Market did--to enforce the eviction orders." (81)
These land grabs also produce vanity construction skyscrapers with astronomically high price tags. (82) "The financial costs of these skyscrapers, as stratospheric as these skyscrapers themselves, do not even begin to describe the full adverse effects ... The opportunity costs are massive ... [O]ne result is rising illiteracy- to the tune of 30 million people--between 2000 and 2005." (83) "It is well established that China today is among the most unequal societies in the world [comparing various Gini coefficients]." (84)
Large-scale white elephant projects, as predicted, provide more efficient and larger 'rent-seeking' opportunities for major bribes. Large-scale foreign direct investments provide access to significantly deeper pockets than domestic Chinese enterprises and also provide better bribe opportunities than investments in education or healthcare, both of which have declined significantly during the FDI gold rush in China.
"The Chinese state today--especially at the local level--is dangerously proximate to 'a grabbing hand,' a term coined by Frye and Shleifer (1997) to describe the Russian state of the 1990s. Exercise of power for pecuniary interest and corruption were hallmarks of Russia's distorted transition to oligarchic capitalism. In the Chinese context, the state literally grabs--for land." (85) "Protests in China increased at a stunning rate [reviewing various studies]," including some very large and violent ones. (86)
Bribery plays a central role in Huang's description of PRC growth in the 1990s. Corruption is certainly not new to China; the Great Wall was breached not by military force but because the Mongolians were able to bribe a Han Chinese general to open the gate. (87) The general consensus among Chinese economists, however, is that corruption intensified massively during the influx of vast FDI in the 1990s. (88)
Drawing from CUNY Queens Professor Yan Sun's very substantial analysis of primary source data, the public records of corruption prosecutions, including both the Communist Party disciplinary apparatus and the public prosecutors' records, (89) Huang compares the economic impacts of corruption prior to substantial FDI in the 1980s and during the FDI influx of the 1990s.
"Corruption in the 1980s can be described as individual cases of malfeasance; in the 1990s it has intensified to a systemic proportion." (90) Bribe sizes increased four times in nominal terms and 2.3 times in real terms during the MNC influx of FDI. (91) "The size of the Chinese bureaucracy has roughly doubled in the last two decades and there are powerful vested interests in the status quo. Corruption has intensified greatly in scope and scale." (92)
High growth rates and a 'friendly' regulatory environment for foreign investors have generated favorable press for China among Western business interests. Western expatriate businessmen are insulated from the petty annoyances of police roadblock shakedowns or paying off local gangs of thugs which are the hallmarks of corruption in many developing and transition societies. "[M]any foreign investors and observers would describe Shanghai as quite clean. They seem to know the trees of petit corruption but miss the forest of grand theft." (93) "Wu Jinglian, probably China's best-known economist, has forcefully argued that without genuine political reforms, China faces a real risk of falling into the trap of crony capitalism." (94)
Economic growth certainly did not cure China's corruption problems. Huang's evidence suggests, in fact, that growth attracted deeppocket foreign investors, who then greatly exacerbated pre-existing corruption problems. The bureaucracy doubled in size; the going rate for bribes rose 2.3 times in real terms while the Gini coefficient fell. Only a select few are benefiting from China's massive FDI-fueled growth.
From this perspective, our business people are not innocent bystanders, blameless victims of extortionate demands from greedy foreign officials. Western MNC business representatives are the deep-pocket partners in collusion with local officials, who exploit local economic opportunities (in China's case access to the much sought-after 1.3 billion person consumer and cheap labor market) while using their money to encourage local officials to harass and restrict competition.
This view of international bribery is not limited to China. (95) People living in other developing and transition nations have widely held views that see rich foreign businesses as the true culprit in the downward spiral of bribery and corrupt government. "Citizens [in poorer countries] do not view corruption in the way suggested by some economists. They do not think of it as a way for business to get around illegitimate and inefficient state rules and regulations. Instead they view it as a way for business to avoid legitimate laws and to benefit at the expense of ordinary people." (96) "[A] commonplace complaint of developing countries; they blame multinational firms for pushing corrupt inducements on reluctant local politicians." (97)
From this viewpoint of local people living inside corrupt regimes, corruption is not designed to get around burdensome rules in the way Western economists frame the problem. Poor countries face two basic problems--insufficient revenues from tax collection and a productive capital sector that is relatively small so that most people do not believe their personal well-being is tied to capital success. (98) This can lead to redistributive demands.
It is not merely the 'lost generations' [who grew up during the Cultural Revolution] inculcated with anti-capitalist fervor under Mao exhibiting moral confusion about market profits. (99) New generations of Chinese entrepreneurs are directly harmed in their ability to compete in a 'rational' 'market.' They are increasingly skeptical of the American version of capitalism, seeing 'free markets' and 'reducing trade barriers' as propaganda to justify bilateral monopolies favoring foreigners with deeper bribe-pockets. They have no experience with an actual free market operating with genuine competition based on price, quality, and service. The word "capitalism" has been appropriated in China, as elsewhere, as propaganda to legitimize bilateral insiders' crony monopolies. These monopolies are, in fact, the opposite of market capitalism.
"It is condescending for multinational companies to determine that the payments contribute to some vaguely beneficial redistribution of wealth and so are appropriate in spite of local legislation rendering them illegal ... We should not assume that developing countries welcome foreign intervention of this kind--intervention that permits companies to buy the police protection they need and leaves local citizens underserved." (100)
A more objective view sees both parties to corrupt transactions, both bribe-seeking local officials and bribe-paying foreign businesses, as culpable. When examining bilateral monopolies and state capture it is best to keep in mind that in all cases it takes two to tango. Neither foreign officials nor multi-national businesses by themselves can accomplish this result. Professor Huang clearly understands the significant role of domestic Chinese officials in the corruption epidemic; indeed, the thrust of his work is focused on taming domestic Chinese FDI-driven corruption increases by increasing competition from domestic Chinese entrepreneurship.
But the view from abroad from less sophisticated observers who have not benefited much personally from the great leap forward into 'capitalism' is that foreign corporations have 'Shanghaied' their economies. Any criticism of local wealth inequalities can now be deflected by xenophobic nationalism--those foreign business devils caused grinding poverty by their corruption. Like our innocent business 'victims' who blame corruption on extortion by evil foreign officials, it is always easier to blame the foreigners when caught in the act.
This brings us to the fourth stage in the eco-cycle of bribery and regulations. In the first phase, bribes are used to reduce regulations. Next, bribe-givers use bribe-based relationships to harass and eliminate competition. In the third phase, bribe-taking officials maximize the scale of projects, centralizing the bribe-getting operations, and perfecting the bilateral monopoly. As the cronies squeeze and loot the country, local popular unrest rises threatening to destabilize the profitable cronies' base. As reform pressures mount, each of the cronies can point the finger at the other, the "foreigner" who "caused" the corruption. Xenophobic nationalism, with more than a touch of racial overtones on both sides, can now be used to deflect and stampede popular unrest, buying additional time for the cronies to continue their looting masquerading as global 'capitalism.'
Neither partner in grand corruption bribery is actually what one normally thinks of as a "victim." They are getting very, very rich. Real 'victims' are found buried alive inside that dry, bloodless, macroeconomic phrase "declining Gini coefficient." (101)
Thirty million additional illiterate people in China 2000-2005 provide one small example of the declining Gini coefficient. (102) Pause for a moment to think about what it means to be illiterate in the modern age of technology information and global capitalism. Condemned by illiteracy to a lifetime of the lowest wage work, (103) it is really easy to cheat illiterate workers and farmers out of their pitiful wages. Nobody got hurt?
III. GREASY DEALS
Moving to the microeconomic perspective, the focus now shifts to analyzing available business strategies for each stage of the business transaction in a systemically corrupted environment. Analyzing each phase of the business transaction, the focus is on how bribery impacts the practical operation of a business.
How would a businessperson actually go about bribing a high-level foreign government official? Corrupt transactions are generally limited to insiders with established links to reduce risks of getting caught or double-dealing. Bribery is not an easy business; it requires criminal skills.
A systemically-corrupt market requires connections for a foreign business outsider to penetrate. Often the outsider business creates a joint venture, hires a local agent, a middleman, a sub-contractor or someone with close ties to the local kleptocrat. This strategy rests on using a middleman who provides good access plus plausible deniability insulating higher-level executives in case the middleman gets caught giving out bribes.
As a business strategy the local middleman approach is risky, as a number of successful prosecutions have demonstrated. (104) One American lawyer, Philippe S.E. Schreiber, has been sued for malpractice by his corporate client. The client was caught violating the FCPA after allegedly relying on the lawyer's advice to use a local foreign middleman and foreign banks when bribing abroad. (105) Another American lawyer, James H. Giffen, is now the criminal defendant in a major FCPA prosecution after allegedly setting up shell corporations and laundering bribe money for the President of Kazakhstan in major oil and gas deals. (106)
The focus in this article, however, is not on good corporate governance compliance programs, preventive legal advice, finding loopholes, or legal defense strategies. The focus is on whether anybody is actually hurt by bribery, and 'hurt' is defined in terms that speak to money-motivated business people.
Former in-house counsel for both the Northrop Grumman Corporation and MCI Communications, Alexandra Addison Wrage, is an international attorney and President of TRACE International, a nonprofit, anti-bribery business association with over 1,000 corporate members in 100 countries. (107) In her book, Bribery and Extortion, Wrage presents the thesis that bribery hurts business, not merely because of the risk of getting caught by prosecutors (which is admittedly small), but because bribery is too risky when viewed as a business transaction in itself. (108) (The academic economists agree.) (109)
A. Greasy Partners, Slippery Terms, and Messy Exits
Finding the right person to bribe is tricky. (110) One cannot advertise on Craigslist to find a bribe partner. Even if the business is being solicited for bribes (extorted?) by a foreign official or his intermediary, is it real? The foreign official may not actually have the authority to do the deal, lift the regulation or whatever advantage is allegedly being offered. (111) The foreign official may also decide to take the money and double-cross the business. (112) Or a higher-level official may see an opportunity and cut the bribe-taking official out after the bribe is already paid. What if it is an FBI sting? (113) Or worse, some foreign corruption reform campaign? (114)
Wrage describes how business people can be gradually seduced into bribery relationships by carefully orchestrated hints and requests for what appear, at least initially, to be harmless relationship-building gifts, advice and favors. (115) In one very poor Middle Eastern country, for example, the foreign business representative agreed to participate in a new, non-profit committee to explore economic development. Over time, bit by bit, the non-profit project escalated into a demand for a five-day, all-expenses paid shopping spree to Paris for the officials and their relatives. (116)
Using an intermediary is risky as well, since the intermediary may not really have the right contacts, or he might claim money is needed to bribe officials and simply pocket some or all of the money himself. (117) Keeping track of bribe money is difficult because bribe payments must be disguised as something else on the corporate records. Otherwise the business's own auditors, any acquiring merger partner's due diligence, the SEC, or the IRS might notice. (118) The business's own (now corrupt) employees may collude with the (corrupt) middleman to siphon off the alleged bribe money. (119) In fact, there may be no bribe payments at all; the "bribes" may actually be a cover story for embezzling employees or agents.
How much is a fair price for the bribe? (120) Normally there are no indexes or markets to set bribe prices. (121) Is the bribe-giver over-paying? The entertainment expenses, endless drinking, call girls, banquets, and gambling jaunts disguised as factory inspection trips to woo insatiable officials are major wastes of time and money.
Contracts to bribe are not legally enforceable. (122) Even if the business manages to find a reliably corrupt partner for a while, he may sell out if a higher bidder comes along. The official or intermediary can raise the price at any time with impunity. There is no end to the haggling. Once a businessman has a reputation for being willing to bribe, he is fair game for every ambitious official who hears about it. He has a reputation for being easy. The bribe price goes up. (123)
There are also significant transaction costs involved in bribery. These costs include setting up shell corporations and wiring the bribe money around to launder it. (124) Ensuring secrecy of Swiss and other "private" bank accounts abroad is no longer as easy or reliable as it used to be. (125)
In one tragically comic case, the courier delivering the bribe cash to the President of Azerbaijan was literally taken hostage by armed men and held until the American bribe-paying business partners agreed to increase the price by a third. (126) If there are large "sunk cost" investments abroad, the business becomes physically hostage to bribe seekers. If the business has trade secrets, patents, or copyrights, it must consider that intellectual property piracy is a major source of revenue for high-level officials abroad. (127)
Even if everything else is going well, the business can get caught in the crossfire (sometimes literally) of factional struggles for power in the foreign nation. (128) If businesses get caught on the wrong side of a factional struggle, the bribe investments are lost, and the business might be too. Of course one could pay off all the factions, but that strategy can become excessively expensive. Seeing opportunities, more factions will undoubtedly arise and splinter off in pursuit of their share.
Once a business is in the bribe relationship, each party is hostage to the other. Either partner can denounce the other if things go wrong. If the Western business is denounced, First World prosecutors will welcome the representatives home with open arms and handcuffs. But if the foreign official bribe-partner is very high level, it might not matter if his own people know he is taking bribes--he is above the law as an autocrat with a large, armed clan running a sovereign state; the Western business people are the sole hostages. Extortion and blackmail are real possibilities here. (129) The company's stock may be adversely affected. (130)
Exit strategies are a problem. (131) The business bribes are the cash cow for the foreign official(s). How can the business exit this deal? There is no pre-nuptial agreement. Actually repatriating any profits--taking actual money out of the foreign country--is a significant problem. (132)
Just empty your pockets and walk away slowly with your hands in the air. Nobody will get hurt. (Except maybe in Russia (133) where Western business representatives are occasionally murdered; drive-by shootings are a possible exit strategy for unwanted partners. (134) Higher level Russians, KBG-trained, prefer poison. Easy to administer, harder to trace, and a slower, more painful death that also provides a significant deterrent effect.) (135) Or China, which has, and uses, the death penalty for bribery, though so far it has only executed Chinese nationals. (China recently sentenced four employees of Australian steel giant Rio Tinto, one of whom is an Australian citizen, to seven to fourteen years in prison for taking bribes and stealing commercial secrets.) (136)
Bribery is a very risk activity. American MNCs are, for the most part, amateurs when it comes to bribery as a business strategy.
B. Meet the Professionals: Transnational Criminal Organizations
If legitimate Western MNC businesses are amateurs dabbling in bribery-based business strategies, there are others for whom the skill set of illegal deal-making and, more importantly, illegal deal-enforcing is already highly developed. For pragmatic contrarians opting out of a legitimate business competition-based rational market and still justifying bribery as a viable business model, it should be noted that their actual business model competitors are Transnational Criminal Organizations (TCOs).
"Regardless of corruption's specific nature, it effectively 'blurs the line' between states and TCOs. Corruption offers criminal groups the means to penetrate markets with relatively low transaction costs and then to exploit those markets largely unregulated...." (137) Systemic bribery opens the gateways for organized crime.
Professor Kelly Greenhill's chilling analysis of "kleptocratic interdependence" self-reinforcing domestic and international relationships between organized criminal groups and government officials should cause any free-market believer to pause before continuing on the path of bribery-based business strategies. (138) Her chart of the top ten TCOs is enlightening. (139) The Albanian mafia, for example, is now colluding with the Turkish mafia, making it into the top ten. (140) Greenhill's research indicates that home-country bases for six of the top ten TCOs are highly functioning democracies; the other four are in hybrid regimes. (141)
While the home-bases for TCOs may be in more developed states, their prey is found inside regimes that have been weakened through systemic corruption. Human trafficking studies estimate that nearly 10% of the female population of Moldova were trafficked in the first decade after the Soviet Union's collapse. (142) Wildlife and animal parts, such as Siberian tiger skins, Amur leopards, and bear paws, are also trafficked. (143) Global networks of organized crime exploit corrupted regimes' weaknesses, using them for profitable drug (144) and illegal arms trades. (145)
The grisly trail of death and destruction left by Viktor Bout, "the world's most notorious illegal arms merchant, until he was arrested in Thailand in 2008," stretches from the FARC in Columbia to Afghanistan, Rwanda, South Africa, and Sierra Leone, built on his fleet of 60 Soviet-era transport aircraft and a staff of 300 pilots. (146) While the profits are deployed in many different ways, in some cases the profits are used to fund terrorist groups such as the FARC. (147) The risks of nuclear proliferation where systemic corruption has weakened both legal systems and personal inhibitions must also be considered.
There is a bit of good news. In Professor Matthew Bunn's expert analysis, nuclear proliferation is not widespread through TCOs at the moment despite some individual lapses. (148) The most serious case, that of Pakistan's A.Q. Khan's network of proliferation to Libya, Iran, North Korea, "and possibly others" was certainly fueled by Khan's vast personal greed-amassing significant individual wealth, despite his modest government salary. (149) Personally-corrupted deal-makers (150) and suppliers in the Khan network provided openings for foreign intelligence services to penetrate and eventually dismantle the Khan proliferation network.
The moral fabric of cultural norms against terrorism and loose nuclear materials, combined with still viable moral and cultural norms in favor of duty and patriotic pride remain sufficiently strong in Russia, in Professor Bunn's analysis, to probably forestall nuclear proliferation for personal gain. (151) One hopes Pakistan, North Korea, and their Chinese (152) patrons can also achieve the apparently higher Russian levels of cultural norms on this very important issue. Those more familiar with India, Israel, Pakistan, or Iran should be invited to share their expertise on this crucial issue. While one does not wish to engage in reductio ad terrorem here, people might really get hurt if this is not correctly analyzed and addressed.
IV. TOXIC GREASE
Fortunately, these very dire scenarios are either speculative or happening to other people far away. None of it actually hurts wealthy residents of the West in any concrete, immediate way. In order to motivate people to change personally-profitable-bribe-based-business-as-usual by convincing them that bribery really does harm people and should not be tolerated, the hurt must be brought home, directly into their personal lives.
A. Facing Victims
Abstract arguments about harm to society as a whole are generally not effective in motivating people to change profitable, entrenched behaviors. "In the specific case of corruption it would seem useful (i) to present the concrete victims that suffer the final consequences and (ii) to show the causal links that tie a present act of corruption with its victims." (153) In order to trigger the neural-causal link between an action and the harm caused, visual perception of the human victim is generally needed. Faces are the most effective. (154)
Neurological research studies have shown that visual perceptions of another person's pain act as a stimulus for our own perception of pain. (155) "Under normal conditions, when our actions affect someone else, we generate inner disgust and discomfort, which leads us to abandon such acts. Some theories propose that the inadequate functioning of the [m]irror [n]eurons allows a person to hurt another without feeling remorse." (156) Immature neural development explains why young children have difficulty perceiving harmful consequences to themselves or others, living in the here and now moment. (157)
Perceiving the person being hurt as a real human may be culturally influenced by racism--refusing to recognize other races as equally and fully human. (158) In extreme cases the inability to perceive other people as human may be associated with autism, a condition in which the patient is completely focused on himself and his interests while overlooking the interests, feelings, and emotions of others. (159)
To persuade people that bribery actually harms real humans, the causal links between acts of bribery and either real harm to someone perceived as a fellow human or to ourselves must be demonstrated. Viewing the faces of human victims triggers the mirror neurons.
Fifty-one people died from contaminated toothpaste manufactured abroad. (160) Fake baby formula killed dozens of infants. (161) Lead and other toxins are found in children's toys manufactured abroad. (162) Dogs and cats died after consuming pet food poisoned with melamine. (163) Vast amounts of imported drywall used in residential home construction in America turn out to be so contaminated with toxins that the homes are literally uninhabitable. (164) Hundreds of children attending school died or were terribly injured, in Sichuan, China, and in Haiti, when shoddy construction resulted in their schools collapsing during earthquakes. There are so many specific examples of "low quality control" killing and injuring people that it could fairly be characterized as an avalanche of death due to corruption. Do human faces make the harm less abstract?
B. It is Not My Fault
The starting point of this article's analysis was the argument that bribery greases the wheels to reduce excessive and burdensome government regulation. Some of those regulations are legal or bureaucratic; for example, how many different licenses, permissions, stamps, and seals it takes to incorporate a new business. Some of those regulations, however, are safety-related quality control.
In a business culture where bribing regulators abroad is justified because they are corrupt foreigners and in a government culture where bribe-taking is culturally acceptable, the rules are not enforced for deep-pocketed foreign business partners. Safety rules suffer. Where the primary goal of both business and government is to personally make as much money as fast as possible, quality control suffers. Where business people spend their most significant efforts bribing government officials, they are not actually tending to quality control in their own business.
There is no rational market competition to provide market discipline on quality control, since market entry is limited to insiders who bribe lavishly and reliably. Government regulatory checks are ineffective if the bribe-giver has obtained high enough official patrons who outrank the safety agency officials. There is no private market legal check, such as products liability lawsuits, where the judicial system is subordinated to political (bribe-taking) interests. Independent consumer organizations testing product safety are forbidden; even private individual consumer complaints warning other consumers are censored or suppressed in the most authoritarian censorship regimes such as Saudi Arabia or China. (165)
[U]nlike South Korea and Taiwan where the quality issues were a "teething" problem naturally characteristic of early industrializing economies, in China many of the quality problems were not due to lack of knowledge. Chinese firms knowingly and deliberately committed fraudulent business practices in order to skimp on costs. (166) The persistence of a business model centered on low costs rather than technology and upgrading and the lack of maturity in the corporate development of Chinese private firms are results of two matching problems in the Chinese economy. One is that political legitimacy, legal support, and financial resources are not matched with the most efficient firms in the economy--private-sector firms and entrepreneurial businesses that have an arm's length relationship with the government.... Private entrepreneurs, instead of focusing on business and product development, spend their time cultivating particularistic ties with the government and currying political favors. Rather than investing in technology and product quality, this is the focus of their competitive strategy. Valuable time, talents, and efforts are lost to rent-seeking activities. (167)
The role of multi-national business, the supply-side of bribe-givers, is central here. Recall that during the 1990s gold rush of foreign direct investment by multi-nationals, the bureaucracy in China doubled in size. (168) The going rate for the size of a bribe increased four times in nominal terms during the same era. (169) Escalating demand (more bureaucrats, bigger bribes) on the side of the bribe-takers generates pressure to cut costs by any means possible on the part of bribe-giving businesses, which are often also being pressured by Wall Street and their own corporate executives whose personal compensation packages depend on short-term profits. It is a greasy fast-food syndrome of instant gratification of what they think will be easy profits without actual competitive work (ignoring the substantial risks of doing business with crooks), while in deep denial about facing human victims.
C. More Than "Inconvenient" Harm
If wealthy residents of Western nations get rich enough, maybe they could afford to personally avoid the avalanche of toxic products descending on clueless consumers of global products. Someone else's puppies and babies get killed. Rich, educated, very much First World Americans and Europeans can afford organic, locally-grown slow food and children's toys that are hand-carved in Vermont or Tyrol. Caveat emptor.
The impact of a self-reinforcing cycle of bribes, regulations and deteriorating quality control is not limited to consumer purchases however. Even the truly wealthy consume air and water. Systemic bribery has a negative impact on environmental regulation. (170)
Analysis of a cross-section of more than 100 countries leads to the conclusion that corruption negatively impacts pollution control. (171) Bribery reduces the effectiveness of environmental regulation. Although an adverse impact on emissions cannot be demonstrated, Welsch thinks that this may be due to lack of accurate reporting of data in corrupted systems. Significant results can be found for ambient pollution of air (urban sulfur dioxide and suspended particulate concentration) and for water pollution (dissolved oxygen demand and suspended solids). These results hold regardless of income. (172)
Faces of individual victims of environmental damage can be found in a variety of places. The effects of untreated mercury poisoning on humans, for example, have been documented by filmmaker Ernesto Cabellos in two films about the people affected by the Yanacocha Gold Mine mercury spill. (173) Newmont Mining Corporation of Denver, owner of the mine, and their "friend for life" kleptocrat (and Fujimori's notorious sidekick), Vladimiro Montesinos, can be seen doing business on the PBS Frontline-New York Times documentary The Curse of Inca Gold (2005), with actual audio tapes of the bribery negotiations. Newmont is trying to purchase a favorable decision from the Supreme Court of Peru by out-bribing the French. (174)
The problems are not confined to impoverished victims in faraway, poorly governed places with inadequate democracy and rule of law institutions. The U.S. government agency charged with regulating oil-drilling safety (175) was corrupted by multi-national oil and gas corporations with the usual tools of sexual bribery (orgies), lavish gifts, vacations, and in the U.S. case, cocaine. (176) Safety regulations for oil drilling were left largely to the industry's own voluntary self-regulation. (177) As it turned out, bland assurances about how safe oil drilling is today with modern technology to prevent major spills were not entirely accurate. (178)
If MNC oil corporations invested in blow-out valve safety research and testing spill-control technology instead of investing money and time in corrupting U.S. regulatory agency officials with cocaine and orgies, perhaps the overall economic result would have been more "efficient" on both macro and micro-economic levels. Short time flame efficiency (reducing business costs) may not be the only important value. It was certainly not the only economic cost.
Business leadership's attention to, and investment in, quality and safety control instead of bribery might have helped the eleven people who were killed when the Deepwater Horizon oil rig exploded. The damage to the people and environment of the Gulf of Mexico is potentially very significant.
That analogy between bribery and garbage turns out to be more than merely hypothetical. Like it or not, all who breathe air or drink water are in this together. Everybody gets hurt.
V. NOT EVERYBODY IS DOING IT: CARROTS AND STICKS
Everybody does it and nobody gets hurt? If the argument justifying bribery turns out to be wrong about the allegedly victimless nature of the crime, maybe that argument is also wrong about the claim that everybody does it. Is everybody giving and taking bribes? Is the idea of a rational free market, disciplined through competition, just cynical propaganda? Do only naive suckers try to play fair and compete by the rules?
There is good news here. Many very successful multi-national corporations are struggling mightily to prevent their own participation in the bribery cycle. Corporate compliance is a growth industry. Whether motivated from religious or ethical considerations, hard-headed recognition of excessive transactional risks of a bribery-based business plan, fear of public relations damage to the brand, negative impact on the stock price, or of personal prosecution and jail time for MNC executives, many successful multi-nationals are trying hard to compete rationally and avoid bribes.
Highly-regarded corporate leaders are stepping up, calling for a cleanup in business practices. To select just one example, General Electric's Senior Vice President-General Counsel from 1987 to 2004, Ben W. Heineman, Jr., provides concrete and practical analysis of the role of MNCs in combating global corruption. (179) Giving very specific advice about how to implement corporate compliance, with a realistic assessment of the countervailing pressures on MNCs, Heineman concludes:
In the end, one might ask whether this broadl multi-faceted role that I have suggested for MNCs in the long war against corruption is too idealistic or naive. I began this chapter by recognizing that there are powerful internal and external forces within the global corporation that promote corruption. But I also explained that an MNC that combines high performance with high integrity can realize benefits inside the company, in the marketplace, and in the global society by operationally fusing these foundational goals. Ultimately, developing nations that can achieve economic growth and build institutional infrastructures are of profound long-term benefit to MNCs because they provide a sound environment for sustainable economic activity. Just as it is in the corporation's enlightened self-interest to fuse high performance with high integrity, so too is it in the MNC's interest, in all the ways that I have suggested, to add its resources, expertise, and commitment to the building of social, economic, political, legal, and administrative institutions that are transparent, accountable, and durable and in which there is but an irreducible minimum amount of corruption. MNCs are not sufficient for economic growth and institution building in the developing world. But they may be necessary and are at least important--and at the very least should do no harm. If they act in their enlightened self-interest, they, in sum, have a significant role in shortening the long war against corruption. (180)
Obvious victims actually harmed by unfair bribery-based competition are compliant and legitimate private sector business competitors economically injured by bribe-payer business cheating. It is not easy to stay clean when others cheat. Those seeking to reduce corruption should consider offering additional tools to legitimate businesses that they might choose to deploy against unfair competition, or use for leverage in their efforts to compete rationally. Strengthening legitimate business efforts could provide a natural constituency and significant ally in reform efforts.
Legitimate businesses cheated out of market share and profits by bribe-payers should have ready access to civil lawsuits for damages. This would provide an additional mechanism to level the playing field through private choices to sue (or not to sue) by legitimate business competitors. It would also provide an efficient private market incentive for those with the best access to information about greasy or toxic deals to self-regulate by offering damages as compensation for their lost profits and recover costs incurred in the efforts to self-regulate a given industry.
Private rights of action are developing in Europe. (181) Germany has already adopted a civil right of action for parties injured by briber payers. (182) Legitimate MNCs may wish to consult with German lawyers about obtaining jurisdiction there to obtain compensation for economic losses due to competitors' bribes.
Although there is currently no specific statutory private fight of action under the FCPA, in the U.S. various legal strategies including lawsuits by disappointed competitors (183) are having some limited success. (184) Civil RICO anti-racketeering laws, both federal and state, and state tort law on intentional interference with contractual relations have generated the best success at the moment, although shareholder derivative suits, ERISA fiduciary duty, and antitrust suits are also obvious legal avenues to challenge bribe-based competitors.
The advantages of private civil over public criminal litigation as an enforcement mechanism are substantial for the business community, particularly under Sarbanes-Oxley's rules about corporate insurance for litigation costs. It is possible that legitimate businesses will adhere to the no-snitch rule of street gangs. It is also possible that legitimate businesses will see an opportunity to compete within the law, recouping profits lost to unfair bribe-based competition. There is no expert plaintiffs' bar at the moment, to my knowledge. It remains to be seen whether business interests actually hurt by unfair bribe-based competition are able or willing to sue civilly.
Voluntary industry cooperation efforts are expanding. Transparency International founder Peter Eigen has launched a "Publish What You Pay" (185) voluntary transparency co-operative initiative with the extractive industries MNCs (oil, gas, minerals) and natural resource-rich nations. (186) TRACE International, a non-profit association of business organizations and law firms representing business, is making substantial efforts including an anonymous hotline for businesses to report extortion demands from specific officials abroad. (187)
For those who are not yet convinced that a new era of higher global business ethics has begun, it should be noted that U.S. prosecutors' batting average on FCPA prosecutions to date is 100%. Not one U.S. jury has allowed a person charged with international bribery to get off scot-free.
Some OECD member states are prosecuting their own with vigor. The French prosecuted their state oil company, Elf-Aquitane. (188) The Germans prosecuted Siemens. (189) For OECD member states still parochially protecting (190) their own major MNC bribers, note that a name and shame campaign by British investigative journalists (191) appears to have Successfully (192) disclosed the British government's cover up of the BAE-Saudi corrupt arms deals. (193)
The U.S. State Department should be encouraged to continue their ongoing diplomatic efforts to persuade fellow OECD member states to seriously discipline their own MNC bribe-givers. Assisting U.S. prosecutors in the enforcement of the FCPA on U.S.-listed corporations are the new money laundering reporting requirements (194) for lawyers, accountants, bankers, broker-dealers, real estate agents, casinos, yacht and jet sales, and jewelry suppliers. (195)
Leveling the international playing field for responsible MNCs is critical if internal corporate self-discipline is to succeed. It would also be very helpful if the State Department would assist in streamlining transnational discovery mechanisms for both civil and criminal cases (196) facilitating external checks that could enhance incentives for MNCs to clean up, or at least increase transaction costs and litigation risks for non-compliant unfair MNC competitors.
Leadership from the top matters. If the global business climate is to change direction on whether bribery is tolerated or not, real change must begin at the very top. Robert Rotberg analyzes several relatively successful corruption reform efforts abroad (Singapore, Hong Kong, Botswana and surprisingly, Rwanda) emphasizing the possibilities of transformative leadership from the top. (197) Lambsdorff, on the other hand, emphasizes grassroots bottom-up social movements and has some very interesting data on the successes and failures of specific anti-corruption reform strategies. (198)
It is very important for those of us entrusted with the education of future leaders, particularly in law, government and business, to discuss bribery clearly and frankly with our students. If educators permit students to go forth into the global business world without having "the talk" first, we leave them to learn about bribery from sleazy predators in back alleys claiming "everybody is doing it and nobody gets hurt." Law students and lawyers need to clearly understand that they will be disbarred and sent to jail if caught structuring bribery deals. (199)
There is no doubt that people can change deeply entrenched, profitable but destructive customs. But old habits are difficult to change. In modern times those same habits seem barbaric. Dumping toxins or patronizing racially segregated hotels and restaurants now seems unthinkable to civilized people. Yet Slavery and Jim Crow, like indiscriminate dumping, were very profitable business strategies lasting centuries, in part because many white people could not or would not perceive African people as fully human and of course because free or cheap labor is profitable. (200)
Humans are an adaptive and resilient social species. If we can agree on fundamental values, we can change course. Bribery is harmful, and not everybody does it. It is a choice, and that choice has real life consequences. Shutting off the supply side of bribe money provided by MNCs will not cure corruption all by itself. It will not end greed. But it will disrupt cash flow and business as usual for kleptocrats abroad and their cronies at home in the West.
Reform begins at home. Supply side, top down reform. If the U.S. and other wealthy OECD member states take responsibility for the behavior of our own MNCs, we can at least ensure that we are not exacerbating destructive corruption abroad.
(1.) The definition of what constitutes an impermissible "bribe" and what is an acceptable "gift" varies across cultures. All cultures have some exchanges that are prohibited as "bribes." For further analysis, see Elizabeth Spahn, International Bribery: The Moral Imperialism Critiques, 18 MINN. J. INT'L L. 155, 193-98 (2009).
(2.) See JOHN T. NOONAN, JR., BRIBES 9-10 (1984); see also RUSS VERSTEEG, EARLY MESOPOTAMIAN LAW (2000); Russ VERSTEEG, LAW IN ANCIENT EGYPT (2002); Russ VERSTEEG, LAW IN THE ANCIENT WORLD (2002); and Russ VERSTEEG, THE ESSENTIALS OF GREEK AND ROMAN LAW 196-97 (2010).
(3.) Qu'ran 7:85, 11:85, 26:183; Sunan Abu-Dawud XXIV:3573; Tusi VII:94, 111.
(4.) MARTINDALE HUBBELL LAW DIGEST: PEOPLE'S REPUBLIC OF CHINA (2008).
(5.) MARTINGALE HUBBELL LAW DIGEST: RUSSIAN FEDERATION (2008).
(6.) MARTINGALE HUBBELL LAW DIGEST: INDIA (2008).
(7.) See DANIEL JORDAN SMITH, A CULTURE OF CORRUPTION: EVERYDAY DECEPTION AND POPULAR DISCONTENT IN NIGERIA (2008) ; Daniel Jordan Smith, The Paradoxes of Popular Participation in Corruption in Nigeria, in CORRUPTION, GLOBAL SECURITY, AND WORLD ORDER 283, 283-309 (Robert I. Rotberg ed., 2009).
(8.) Laura S. Underkuffler, Defining Corruption: Implications for Action, in CORRUPTION, GLOBAL SECURITY, AND WORLD ORDER 27, 27-46 (Robert I. Rotberg ed., 2009) (calling for a moral crusade); GRETCHEN PETERS, SEEDS OF TERROR: HOW HEROIN IS BANKROLLING THE TALIBAN AND AL QAEDA 11 (2009).
(9.) Perceptions of corruption in the Roman Catholic practice of selling indulgences were major factors in Martin Luther's revolt, eventually splitting Protestants from the Roman Catholic Church. See, e.g., DIARMAID MACCULLOCH, THE REFORMATION 121-23 (2003).
(10.) Joseph Nye produced a classic early statement of corruption in modern American scholarship. "[B]ehavior which deviates from the formal duties of a public role because of private-regarding (personal, close family, private clique) pecuniary or status gains; or violates rules against the exercise of certain types of private-regarding influences." Joseph Nye, Corruption and Political Development: A Cost-Benefit Analysis, in POLITICAL CORRUPTION: READINGS IN COMPARATIVE ANALYSIS 566-67 (Arnold J. Heidenheimer ed., 1978).
Susan Rose-Ackerman's classic economic definition focuses on the agent/principal relationship. "Corruption occurs where private wealth and public power overlap." The economic framework focuses on "pathologies in the agency/principal relation [that] are at the heart of the corrupt transaction." SUSAN ROSE-ACKERMAN, INTERNATIONAL HANDBOOK ON THE ECONOMICS OF CORRUPTION xvii (2006) [hereinafter International Handbook]; see also SUSAN ROSE-ACKERMAN, CORRUPTION AND GOVERNMENT (1999); SUSAN ROSE-ACKERMAN, CORRUPTION: A STUDY IN POLITICAL ECONOMY (1978). Rose-Ackerman is Henry R. Luce Professor of Jurisprudence (Law and Political Science) at Yale.
(11.) 15 U.S.C. [section] 78(d) (2004).
(12.) OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, Nov. 21, 1997, available at http://www.oecd.org/document/21/0,2340,en_2649_34859_2017813_1_1_1_,00.htm (last visited Aug. 1, 2010). The OECD requires that all member states enact domestic laws to bring them into compliance.
(13.) British colonial imperialists during the height of empire used similar justifications, without economic models. See Padideh Ala'i, The Legacy of Geographical Morality and Colonialism: A Historical Assessment of the Current Crusade Against Corruption, 33 VAND. J. TRANSNAT'L L. 877 (2000). The overt racism in British imperialist bribe-givers' willingness to bribe abroad while rejecting bribery at home in Britain on moral grounds is particularly troubling. See id. at 887; see also Spahn, supra note 1, at 186-92.
(14.) See Nathaniel H. Left, Economic Development through Bureaucratic Corruption, 8(3) AMERICAN BEHAVIORAL SCIENTIST, 8, 8-14 (1964); Colin Leys, What is the Problem about Corruption, 3(2) J. OF MOD. AFR. STUD., 215, 215-30 (1965); James C. Scott, The Analysis of Corruption in Developing Nations, 11 COMP. STUD. IN SOC'Y & HIST. 315, 315-41 (1969).
(15.) International Handbook, supra note 10, at xvi-xv.
(16.) See, e.g., Pierre-Guillaume Meon & Laurent Weill, Is Corruption an Efficient Grease? 38(3) WORLD DEC., 244, 244-59 (2010) (arguing that where governance institutions are less effective, greasing the wheels through bribery improves efficiency); see also Mushfiq us Swaleheen & Dean Stansel, Economic Freedom, Corruption, and Growth, 27 CATO J., 343, 343-58 (2007). For a rebuttal of this view, see Toke S. Aidt, Corruption, Institutions, and Economic Development, 25(2) OXFORD REV. ECON. POL'Y, 271, 273 (2009) (providing a bibliography and brief review of the grease versus sand debate over the past several decades). Meon and Weill also have an especially helpful bibliography of grease versus sand economic studies. See Meon & Weill at 244.
(17.) JOHANN GRAY LAMBSDORFF, THE INSTITUTIONAL ECONOMICS OF CORRUPTION AND REFORM 161 (2007).
(18.) Others might see human rights, or democracy and rule of law, or spiritual peace as equally or more important values than market efficiency. In this article I am engaging with people for whom making money for themselves and their families is the most important purpose in life so I am making the points in terms that speak to their values. Often people for whom money is the most important value are struggling for survival, or have recent familial memories of survival struggles. Others, of course, are suffering in the living hell of insatiable personal greed.
(19.) LAMBSDORFF, supra note 17, at 83 (citing Richard A. Posner, Theories of Economic Regulation, 5 BELL J. or ECON. & MGMT SCI. 335, 337-39 (1974)).
(20.) "A vicious cycle can exist whereby inefficient regulation leads to corruption, which in turn cultivates the further spread of troublesome regulation ... and the opportunity to exact further payoffs." Id. at 60. "Corruption does not help to overcome cumbersome regulation but acts as an inducement to public servants to create artificial bureaucratic bottlenecks." Id. at 61.
(21.) SUSAN ROSE-ACKERMAN, CORRUPTION AND GOVERNMENT 15-23 (1999).
(22.) Id. at 17. "[T]he defense of bribery as an allocative tool is static. It assumes a given set of laws and public program requirements. Instead, corrupt officials, seeing the financial benefits of accepting bribes, frequently have the discretion to redesign their activities. They may create scarcity, delay and red tape to encourage bribery. They may threaten the reluctant with arrest and criminal prosecution. In such cases individuals can justify payoffs as a way to avoid greater harms, but the systemic costs are serious ... can facilitate a downward spiral ... more and more people ... engage in corruption over time." Id. at 26.
(23.) Chair in Economic Theory at the University of Passau, Germany, and Senior Research Consultant to Transparency International. He is the founder of the Corruption Perceptions Index. See JOHANN GRAF LAMBSDORFF ET AL., THE NEW INSTITUTIONAL ECONOMICS OF CORRUPTION (2005).
(24.) LAMBSDORFF, supra note 17, at 122-25. See also RAYMOND FISMAN & EDWARD MIGUEL, ECONOMIC GANGSTERS 67 (2008).
(25.) LAMBSDORFF, supra note 17, 10-11. Lambsdorff summarizes a considerable number of specific economic studies from a wide variety of economists on this point.
(26.) FISMAN & MIGUEL, supra note 24, at 53-75 (discussing the bribes/higher and more complex tariffs cycle). Raymond Fisman is the Lambert Family Professor of Social Enterprise and research director for the Social Enterprise Program at Columbia Business School. Edward Miguel is associate professor of economics and director of the Center of Evaluations for Global Action at the University of California, Berkeley.
(27.) LAMBSDORFF, supra note 17, at 61 (citing Pierre-Guillaum Meon & Khalid Sekkat, Does Corruption Grease or Sand the Wheels of Growth?, 122 PUBLIC CHOICE 69-97 (2005)).
(28.) Id. at 61. For a different approach that comes to the same conclusion that a "consensus" has arisen, see MICHAEL JOHNSTON, SYNDROMES OF CORRUPTION 17-22 (2005).
(29.) See Aidt, supra note 16, at 274.
(32.) Id. at 275.
(33.) HERNANDO DE SOTO, THE OTHER PATH: THE INVISIBLE REVOLUTION IN THE THIRD WORLD (1989).
(34.) LAMBSDORFF, supra note 17, at 123. See also Aidt, supra note 16, at 275 (discussing De Soto's research and the subsequent research demonstrating the motivations of officials to increase regulations to maximize bribes).
(35.) Meon & Weill, supra note 16, at 254.
(36.) Id. Their actual conclusions seem to caution reformers against excessive zeal, rather than providing bald support for grease-the-wheels bribery as reflected in their article's headline summary. Their full conclusion states:
A possible policy implication of these findings might be that countries plagued with a very inefficient institutional framework may benefit from letting corruption grow. This interpretation is extreme and risky, however. One should first recall that these results pertain to the impact of corruption on aggregate efficiency, but not on the accumulation of factors of production. The impact of corruption on accumulation may still be detrimental, and therefore negatively affect incomes regardless of governance. Second, a country that would let corruption run rampant may find itself stuck later on with an even worse global institutional framework, and thus end up in a bad governance/low efficiency trap. Encouraging countries to fight corruption while also striving to improve other aspects of governance, mainly government efficiency and the quality of their regulatory framework, perhaps constitutes safer advice. Indeed, a successful policy package should be multi-faceted, while narrower reform programs may instead prove counterproductive. Which of these two sets of advice to follow, however, depends in part on the dynamics of the relationship between corruption, governance, and economic performance, which is not yet fully understood. Understanding these dynamics should therefore feature highly on the political economy research agenda.
Id. (emphasis added).
(37.) See, e.g., Aidt, supra note 16, at 278 n.10 (discussing the measurement of data over time). "Ultimate!y, development is about sustainable improvements in human welfare." Id. at 285.
(38.) Id. at 288 (internal citations omitted).
(39.) Id. at 274.
(40.) InternationaL Handbook, supra note 101 at xvii.
(41.) LAMBSDORFF, supra note 17, at 68-69.
(42.) International Handbook, supra note 10, at xix-xx.
(43.) Investing in education, by contrast, presents relatively fewer opportunities and lower rents, so investment in education is disfavored. LAMBSDORFF, supra note 17, at 88. Military spending has increased opportunities for bigger bribes. Id.
(44.) For a review of the debates by development economists, see JOHNSTON, supra note 28, at 23-35. Paolo Mauro, Corruption: Causes, Consequences, and Agenda for Further Research, 35 FIN. & DEV. 11-14 (1998) is the classic study demonstrating the effect on development of the wrong choice of projects. An especially well written and accessible economics of development book is FISMAN & MIGUEL, supra note 24.
(45.) International Handbook, supra note 10, at xvi ("There is no doubt about a strong correlation between GDP per head and corruption. But there is equal agreement that no unambiguous causality can be derived from this."). See LAMBSDORFF, supra note 17, at 71 (discussing specific studies at 71-79 and 91-93).
(46.) An "iterative process may operate where corruption limits growth and low growth encourages corruption." International Handbook, supra note 10, at xxii. Economic growth itself will not cure systemic corruption, however. "It is a mistake, then, to assert that the main cure for corruption is economic growth. That claim reflects an overly simple view.., wishful thinking to advise poor countries to grow as a cure for corruption. For most of them, that is simply not an option." Id. at xvi.
(47.) See, e.g., Aidt, supra note 16, at 278.
(48.) "Kleptocracy" is a term of art used to describe an especially strong corrupt government. Derived from the Greek words for "thieves" and "rule," the term literally means "rule by thieves."
(49.) See Daniel Treisman, Postcommunist Corruption, in POLITICAL ECONOMY OF TRANSITION AND DEVELOPMENT: INSTITUTIONS, POLITICS AND POLICIES 201, 207 (Nauro F. Campos & Jan Fidrmuc eds., 2003) ("'State capture' refers to privatization of the actual rule-making process--the illicit and non-transparent sale of decisions on the content of rules, laws, decrees, or regulations.").
(50.) The term "crony capitalism" is a popular misnomer for a bilateral monopoly.
(51.) "The relative power of government officials and private interests may, in practice, be difficult to sort out." International Handbook, supra note 10, at xx.
(52.) Frontline: The Curse of Inca Gold (PBS television broadcast Oct. 2005); Jane Perlez & Lowell Bergman, Tangled Strands in Fight Over Peru Gold Mine, N.Y. TIMES, Oct. 25, 2005.
(53.) Robert Legvold, Corruption, the Criminalized State, and Post-Soviet Transitions, in CORRUPTION, GLOBAL SECURITY, AND WORLD ORDER 194, 196-97 (Robert I. Rotberg ed., 2009) (discussing Russia, Ukraine and other post-Soviet states except specific regions in Georgia, Moldova and Azerbaijan). Robert Legvold is Marshall Shulman Professor Emeritus of Political Science at Columbia University and Project Director for 'Rethinking U.S. Policy toward Russia' at the American Academy of Arts and Sciences. Id. at 472.
(54.) See supra note 52.
(55.) See Spahn, supra note 1, at 209-11.
(56.) The most harmful variation of grand corruption is the "bilateral monopoly," where a "narrow set of powerful public and private figures controls the state." International Handbook, supra note 10, at xx.
(57.) Id. at xix.
(58.) ROBERT J. CARBAUGH, CONTEMPORARY ECONOMICS: AN APPLICATIONS APPROACH 119 (4th ed. 2006) ("[A] monopolist is likely to charge a higher price and earn higher profits than a competitive industry, which harms consumers. The monopolist attains excess profits by consciously restricting output and increasing price above the competitive level. The output restriction comes at the expense of society, which would have preferred additional output and thus additional resources devoted to the production of the good.").
(59.) See Andrew Reschovsky, Are City Fiscal Crises on the Horizon ?, in READINGS IN STATE AND LOCAL PUBLIC FINANCE 439, 456 (Dick Netzer & Matthew P. Drennan eds., 1997).
(60.) This is the central problem with the truncated analysis of Swaleheen and Stansel, as well as other modern contrarians discussed. See articles cited supra note 16. Swaleheen and Stansel define "economic freedom" as multiple economic choices and they argue that, where multiple choices exist, bribes do not matter. See Swaleheen and Stansel, supra note 16, at 343. In the long-term, bribe-givers develop relationships with officials to influence them to deploy regulations that will reduce competition over time. Businesses yield greater profits with less work through monopolies, and business people if unregulated will seek to maximize profits in any way they can, eventually eliminating multiple choices over time.
(61.) "[T]he most egregious forms of corruption are the least likely to be punished [in the foreign nation], because the most powerful people participate in them." Smith, supra note 7, at 292.
(62.) Swaleheen and Stansel, for example, have little difficulty concluding that their unusual thesis is supported by the Chinese case, relying exclusively on the Corruption Perceptions Index (CPI) and ignoring actual scholarship by economists specializing in China's economic development, such as Huang or Wu (discussed infra at notes 67, 68). See id. at 354.
(63.) There are a number of highly regarded Chinese economists writing on the problem of corruption in Chinese. Translations of these works are not available to the best of my knowledge.
(64.) YAN SUN, CORRUPTION AND MARKET IN CONTEMPORARY CHINA 20 (2004). Sun's work draws on public records from corruption cases published by Chinese legal and Communist Party disciplinary apparatuses. Because these public cases involve totally domestic Chinese bribery cases, they are less directly relevant to our topic of foreign business bribery. Her very substantial work provides an excellent resource for those examining domestic corruption and reform efforts. I recommend it highly.
Jens Andvig reflects the traditional Western economist's analysis that the "stabilizing role" of the Communist Party in China, which retained power during economic transition, assisted economic growth. Jens Andvig, Corruption in China and Russia Compared: Different Legacies of Central Planning, in International Handbook, supra note 10, at 278-319. In my experience, this view is not widely shared by Chinese scholars, including Party members. My understanding is that many Chinese non-Party members see the Party as irrevocably corrupted and impeding real economic progress, while most Party members struggle internally within the Party to try to clean it up in the belief that reducing popular perceptions of corruption is critical for the Party's survival. For people in the West trying to get a handle on the very complicated relations between ordinary people in China and the Party, I suggest reading Ha Jin's novels and short stories, particularly THE BRIDEGROOM (2001).
Other books on corruption/gifts in China include MAYFAIR MEI-HUI YANG, GIFTS, FAVORS AND BANQUETS: THE ART OF SOCIAL RELATIONSHIPS IN CHINA (1994) and XIAOBO LU, CADRES & CORRUPTION: THE ORGANIZED INVOLUTION OF THE CHINESE COMMUNIST PARTY (2000).
(65.) See Alwyn Young, Gold into Base Metals: Productivity Growth in the People's Republic of China During the Reform Period, 111 J. POL. ECON. 1220, 1220 (2003) (concluding that "[t] he productivity performance of the nonagricultural economy during [China's] reform period [of 1978 to 1998] is respectable but not outstanding.").
(66.) Andvig, supra note 64, at 280, 310 (2006).
(67.) Huang's books in English include INFLATION AND INVESTMENT CONTROLS IN CHINA: THE POLITICAL ECONOMY OF CENTRAL-LOCAL RELATIONS DURING THE REFORM ERA (1996), FDI IN CHINA, AN ASIAN PERSPECTIVE (1998), and the very influential book SELLING CHINA: FOREIGN DIRECT INVESTMENT DURING THE REFORM ERA (2003).
(68.) His most recent book is YASHENG HUANG, CAPITALISM WITH CHINESE CHARACTERISTICS: ENTREPRENEURSHIP AND THE STATE (2008). My discussion will primarily rely on Huang's most recent 2008 work, reflecting additional data as well as re-thinking some of his earlier hypotheses. I am very grateful to colleagues in China, who must remain un-named, for calling my attention to Huang's work.
(69.) Id. at 272.
(70.) Id. at 158. In one case, a local businessman's refusal to bribe bank officials to obtain loans caused his company to be destroyed, and he was imprisoned on trumped-up charges. Id. at 109, 139.
(71.) Id. at 152-53. The infamous Xiushui [Silk] Market grab in 2004 is another illustration. Id. at 235.
(72.) Id. at 230 (discussing various bribery scandals).
(73.) Id. at 160.
(74.) Id. at 222-23.
(75.) "Shanghai government favors Foreign Investment Enterprises (FIEs)--firms with at least 25 percent of foreign equity--both explicitly and implicitly. One implicit form of policy favoritism is that the Shanghai government allows FIEs to deduct the actual payroll costs from their tax liabilities. Domestic firms are allowed to deduct their payroll costs only to the extent of an average level ... purposely set [by the government at] a lower level . . . thus limiting the deductions by domestic firms." Id. at 217.
(76.) Id. at 225. "The essence of the Shanghai model is to restrict the opportunities for Shanghai residents to become capitalists, but to create an efficient and attractive platform for foreign capitalists to set up production facilities." Id. at 178, 209.
(78.) "The Shanghai model possesses the following central elements: an urban bias, heavyhanded interventionism by the state, an investment-intensive growth strategy, and a biased liberalization that privileges FDI over indigenous--especially small-scale--private entrepreneurship." Id. at 42.
(79.) Id. at 227.
(80.) Id. at 284.
(81.) Id. (material in brackets added).
(82.) Id. at 287. For example, the Bank of China and National Theater Buildings in Beijing, each of which reportedly cost US$200 million, are two such projects. The China Central Television building project reportedly cost US$800 million.
(84.) Id. at 256. For a discussion of underinvestment in education and the impact on literacy rates, see id. at 243-49. For a discussion of health care, see id. at 249-51. A "Gini coefficient" is an economic measure of inequality of income distribution.
(85.) Id. at 283.
(86.) Id. at 233, 259-69.
(87.) See, e.g., Great Wall of China, WIKIPEDIA (July 18, 2010) http://en.wikipedia.org/wiki/Great_Wall of China. Although General Wu's motivations remain shrouded in romantic legends (such as the love story involving his kidnapped concubine), the fact is that he did end up on the Manchu/Qing payroll (until he eventually revolted against them as well). See, e.g., Wu Sangui, WIKIPEDIA (July 18, 2010) http://en.wikipedia.org/wiki/Wu_Sangui.
(88.) HUANG, supra note 68, at 284.
(89.) SUN, supra note 64.
(90.) HUANG, supra note 68, at 284--85.
(91.) Id. "The magnitude of corruption is illustrated by the number of bribes involving the highest level officials in the Chinese political system. According to a study of all the reported bribery cases involving government officials at or above the rank of minister or provincial governor from 1986 to 2003, in the 1980s, the largest bribe was 16,000 yuan paid to a vice governor of Xinjiang province. See SUN, supra note 64, at 46-49. This compares with the highest bribe between 1990 and 2003 of 40 million yuan. The second highest was 25 million yuan and the third highest was 18 million yuan. The smallest bribe in the 1990s was 64,000 yuan, an offense committed in 1994. In nominal terms, the lowest amount of a bribe in the 1990s is four times the highest amount of a bribe uncovered in the 1980s and 2.3 times in real terms." See HUANG, supra note 68, at 285. "There is an entirely different style of corruption in China now. Pei notes that corrupt officials in China have become younger .... One would normally think that officials in the prime of their careers would be more circumspect. Corruption today takes the form of grand theft and insider looting, not just under-the-table deals." Id. at 285. The data Huang relies on here is largely drawn from Yan Sun's very substantial analysis of actual public records of corruption prosecutions drawn from the Communist Party disciplinary apparatus and the public prosecutors' records. See SUN, supra note 64.
(92.) HUANG, supra note 68, at 44.
(93.) Id. at 230 (discussing specific cases involving multimillion US dollar bribes).
(94.) Id. at 276. Wu's work has not been translated into English to the best of my knowledge. Translation of these works from Chinese to English would be more helpful than yet another book about China's economy written by Western journalists who visited for a couple of weeks.
(95.) Nigeria is an apt example. "Oil was discovered in the Niger Delta in 1958, but it was not until the 1970s, when Nigeria joined OPEC and the Middle East crisis sent the price of oil skyrocketing, that the country was transformed into a 'petrostate.' As the nation became increasingly dependent on oil as a source of revenue, rent-seeking behavior gradually replaced productive agriculture as the primary means to achieve wealth and prestige." Smith, supra note 7, at 289.
(96.) International Handbook, supra note 10, at xxx, summarizing Rafael Di Tella and Robert MacCulloch's remarks on their chapter analyzing data from an annual survey of 18 countries in Latin America. See Rafael Di Tella and Robert MacCulloch, id. at 360.
(97.) International Handbook, supra note 10, at xxxi, summarizing Tina Soreide's remarks on her chapter analyzing data from Norwegian business firms, Corruption in International Business Transactions: The Perspective of Norwegian Firms, id. at 381.
(98.) International Handbook, supra note 10, at xxvi-xxvii, summarizing Mushtaq Khan's remarks analyzing the tax revenue problems generated by various forms of corrupt states.
(99.) International Handbook, supra note 10, at xxvii-xxix, summarizing Jens Andvig's remarks on his chapter comparing corruption in China and Russia.
(100.) ALEXANDRA ADDISON WRAGE, BRIBERY AND EXTORTION 23 (2007).
(101.) For an alternative method of measuring the connection between disparities of wealth and corruption along group lines, see ERiC M. USLANER, CORRUPTION, INEQUALITY, AND THE RULE OF LAW 28-29 (2008). Lower health results also are attributable to corruption. The going rates for a bribe for a new mother to see her baby for the first time in Bangalore are evidence of this corruption. The demand for a payment in return for giving the new mother her infant is US$12 for a baby boy and US$7 for a baby girl where the grandmother's monthly wage was $10. WRAGE, supra note 100, at 95.
(102.) HUANG, supra note 68, at xvii. For additional examples of actual victims, see infra Section IV. For a discussion of the impact of underinvestment in basic services such as education, see supra notes 43, 84.
(103.) Illiteracy obviously also has other damaging effects such as limitations on access to the legal and political systems, inability to use a computer, and the intangible factors of being deprived of ever playing a computer game, reading a book or a poem, or knowing for sure what the street sign says. But in this article the argument is framed in terms of money making the world go round.
(104.) See, e.g., Daimler AG settled an FCPA case involving twenty-two countries for $180 million in criminal and civil fines, penalties and disgorgement, Sentencing Memorandum, U.S. v. Daimler AG, Case No. l:10-cr-00063-RJL (D.D.C. Mar. 24, 2010), http://www.mediafire.com/?mytlmenzu32. Daimler used third-party accounts known in German as "interne Fremdkonten. Complaint at [paragraph] 4, 75-76, U.S. v. Daimler AG, Case No. l:10-cr-00063-RJL, (D.D.C. Mar. 22, 2010), http://www.mediafire.com/?zlawwzmnmcu. My thanks to Elizabeth Siegel for this research. See also W.S. Kirkpatrick & Co. v. Envtl. Tectonics Corp., 493 U.S. 400 (1990) (actual knowledge of the bribes given by an agent is not required for criminal convictions under the FCPA); U.S. v. Kay, 513 F.3d 461 (5th Cir. 2007); Eryn K. Schornick, Know Your Partner's Partners: Liability of Joint Ventures Under the Foreign Corrupt Practices Act of 1977 (2008) (unpublished student paper) (on file with author).
(105.) Stichting Ter Behartiging v. Schreiber, 407 F.3d 34 (2d Cir. 2005).
(106.) U.S. v. Giffen, 379 F. Supp. 2d 337 (S.D.N.Y. 2004); U.S.v. Giffen, 473 F.3d 30 (2d Cir. 2006). See Elizabeth Spahn, Discovering Secrets: Act of State Defenses to Bribery Cases, 38 HOFSTRA L. REV. 163 (2009).
(107.) ALEXANDRA ADDISON WRAGE, BRIBERY AND EXTORTION (2007). Wrage's biographical information is located inside the back cover of the book.
(108.) WRAGE, supra note 100, at 69-84.
(109.) LAMBSDORFF, supra note 17, at 139-163.
(110.) "People are careful to circumvent state or bureaucratic rules only among those that they know and trust, partly out of fear that the rules will be used against them." Smith, supra note 7, at 295. See also LAMBSDORFF, supra note 17, at 194-95 (providing additional examples and studies).
(111.) LAMBSDORFF, supra note 17, at 190 (discussing uncertainties in finding the right bribe partner, including examples involving outright fake claims of being able to influence deals or reduce regulations, and the waste of time negotiating with bureaucrats).
(112.) WRAGE, supra note 100, at 57-58 (describing how an Indonesian government official double-crossed a Monsanto manager).
(113.) Press Release, U.S. Dep't of Justice, Twenty-Two Executives and Employees of Military and Law Enforcement Products Companies Charged in Foreign Bribery Scheme (Jan. 19, 2010), http://www.justice.gov/opa/pr/2010/January/10-crm-048.html (FBI undercover sting of gun merchants).
(114.) China has for the first time indicted MNC foreign executives for bribery and infringing on state secrets. Anthony Lin, China Indicts Rio Tinto Executives (Feb. 10, 2010), http://www.law.com/jsp/article.jsp?id=1202443040130 (last visited Aug. 2, 2010). This is particularly worrying because China has, and uses, the death penalty for bribery. So far only Chinese nationals have been executed for bribery. Rio Tinto is the first case involving foreign nationals. FCPA Blog, The Iron Ore War (July 16, 2009), http://www.fcpablog.com/blog/tag/rio-tinto (last visited Aug. 2, 2010).
(115.) WRAGE, supra note 100, at 43-44. Requests for advice about a daughter's application to a U.S. college escalate into a demand for the company to pay her tuition; advice about health problems for a relative becomes a request to procure a kidney and pay for the transplant. Id. at 45. Despite his best efforts to control a relationship-building meal, one businessman was faced with the foreign official arriving with a large entourage and directing the waiter to bring the 'special' wine menu. The bill was many thousands of dollars. Id. at 47.
(116.) Id. at 43-44.
(117.) See id. at 78-82. Be sure to read this section if you are thinking of using intermediaries.
(118.) Id. at 17-18 (describing the use of a "coffee fund" to cover bribes, discovered when corporate auditors questioned what had risen to $30,000 per month for just eight employees' "coffee").
(119.) LAMBSDORFF, supra note 17, at 167-68.
(120.) International Handbook, supra note 10, at xxv (summarizing Ray Fisman and Roberta Gatti's chapter about uncertainty regarding bribe payment availability and size).
(121.) WRAGE, supra note 100, at 24. "Apart from a handful of West African countries that have been brazen enough to publish quasi-official 'fee charts' for facilitating payments, each encounter must be negotiated separately...."
(122.) Id. at 73-75.
(123.) Id. at 28 (describing the layers of officials each demanding a cut as "pyramid schemes"). "Representatives of multinational companies operating overseas describe a consistent trend. When these companies pay bribes to resolve some short-term nuisance, they report that the bribe-taker returns, the word spread, and the demands multiply." Id. at 31. See also LAMBSDORFF, supra note 17, at 169.
(124.) See Stichting Ter Behartiging v. Schreiber, 407 F.3d 34 (2d Cir. 2005) (where the lawyer advising Saybolt actually turned states' witness and testified against his client); U.S. v. Giffen, 473 F.3d 30, 31 (2d Cir. 2006). James H. Giffen, who allegedly set up shell corporations and laundered oil company money to bribe the President of Kazakhstan, is now a criminal defendant in a major FCPA prosecution. See also Spahn, supra note 106.
(125.) UBS Enter Agreement in Summons Enforcement Action (United States v. UBS AG), 2009 TAX NOTES TODAY 159-15 (Aug. 19, 2009); Carrick Mollencamp et al., UBS to Give 4,450 Names to U.S., WALL ST.J., Aug. 20, 2009, available at http://online.wsj.com/article/SB125068571743342973.html (last visited Aug. 2, 2010). My thanks to Ashley Picker Dubin for the tax research.
(126.) U.S. v. Kozeny, 582 F. Supp. 2d 535, 540 (S.D.N.Y. 2008).
(127.) LAMBSDORFF, supra note 17, at 81, 95.
(128.) WRAGE, supra note 100, at 66 (discussing the prosecution of the Shanghai faction when the new leader, Hu Jintao, took power). Even within a kleptocratic family, factions compete. See e.g., LAMBSDORFF, supra note 17, at 91 (discussing how competition among the Suharto grandchildren led to conflicts over taxes on beer and the negative impact on Bali hotel business).
(129.) LAMBSDORFF, supra note 17, at 214.
(130.) WRAGE, supra note 100, at 71.
(131.) LAMBSDORFF, supra note 17, at 216-22 (discussing three German bribery cases and the Philippine Jueteng illegal lottery).
(132.) See, e.g., HUANG, supra note 68, at 225.
(133.) For a horrifying list of "some" of the major business-related murders in Russia in the last twelve years, see Radio Free Europe--Radio Liberty, Russia: High-Profile Killings, Attempted Killings in the Post-Soviet Period (Oct. 19, 2006), http://www.rferl.org/content/article/1071368.html (last visited Aug. 2, 2010). See also Vladimir Kvint, The Scary Business of Russia, FORBES, May 23, 2005; A Survey of Russia: Watch Your Back, ECONOMIST, May 22, 2004, at 42. Thanks to Barry Stearns for the Russian research.
(134.) American executive Paul Tatum of Radisson Hotels International was machine-gunned to death in Moscow after the deals went sour, despite having eighteen body guards. Erin Arvedlund & Maria Atanasov, Murder In Moscow, FORTUNE, March 3, 1997, at 128-34. Thanks to Helen Litwack for this research.
(135.) Dorset Man Killed in Helicopter 'Murdered by Russians, 'BOURNEMOUTH ECHO (U.K.), July 20, 2009, available at 2009 WLNR 13846641.
(136.) Lucy Hornby & Rujun Shen, China jails Rio Tinto staff for 7-14 years, REUTERS, Mar. 29, 2010.
(137.) Kelly M. Greenhill, Kleptocratic Interdependence: Trafficking, Corruption, and the Marriage of Politics and Illicit Profits, in CORRUPTION, GLOBAL SECURITY, AND WORLD ORDER 96, 99 (Robert I. Rotberg ed., 2009) (discussing a shockingly high number of specific examples of substantial penetration of sovereign states by TCOs).
(138.) Id. at 96-123.
(139.) Id. at 112-13.
(140.) Id. at 108.
(141.) Id. at 109-10 (data displayed in chart on page 110).
(142.) LEGVOLD, supra note 53, at 210 ("[O]ne study suggests that in the decade between 1995 and 2005 as many as 500,000 to 850,000 women may have been trafficked out of Russia. In Ukraine, a country with a little more than a third of the population of Russia, from 1991 to 1998, an estimated 500,000 women were victimized. More shocking, in Moldova, parallel estimates in the first decade after the collapse of the Soviet Union were 200,000-400,000 women, which, if true, is close to 10 percent of the female population.").
(143.) Id. at 210-11.
(144.) PETERS, supra note 8. See also LEGVOLD, supra note 53, at 211-12.
(145.) LEGVOLD, supra note 53, at 212-13 ("The UN Department for Disarmament Affairs reported that of the forty-nine major conflicts fought in the 1990s, forty-seven were waged with small arms. Each year between 300,000 and 500,000 people die by small arms and light weapons, mostly civilians, and many women and children.... The other half of the sad tale returns full circle to illicit trade in its ugliest dimension, because the trade in illegal small arms and light weapons is largely financed by drug, diamond, wildlife, timber and human trafficking.").
(146.) Id. at 213. Bigger guns are involved too, including fighter jets, passive radar stations, and in one truly bizarre case, a nuclear submarine delivered to Latin America. Id. at 214-15.
(147.) Jessica C. Teets & Erica Chenoweth, To Bribe or To Bomb: Do Corruption and Terrorism Go Together?, in CORRUPTION, GLOBAL SECURITY, AND WORLD ORDER 167, 180 (Robert I. Rotberg ed., 2009) ("Corruption does not motivate terrorism because of grievances against corrupt states, but rather it facilitates terrorism ... probably because obtaining illicit materials to conduct attacks is more difficult in less corrupt or transparent countries."). Although motivational terrorism (responding to a corrupted public sector) appears to occur in the cases of Hezbollah and Hamas, more generally it is an opportunity-based approach, where terrorists use an existing criminal infrastructure supported by corruption. Id. at 171.
Specific examples of connections between corruption and terrorist activity include the FARC in Columbia, see id. at 185-87, the Shining Path in Peru, see id. at 174, and the 2004 terrorist attacks on the Madrid train system, see id. at 174.
(148.) Matthew Bunn, Corruption and Nuclear Proliferation, in CORRUPTION, GLOBAL SECURITY, AND WORLD ORDER 124, 132-33, 137, 139 (Robert I. Rotberg ed., 2009). Bunn describes it as mostly "comically disorganized crime." Id. at 139. See also LEGVOLD, supra note 53, at 209 (two-bit smuggler slipping through Russian-Georgian border controls with 100 grams of weapons-grade uranium in a plastic sandwich bag hidden in his tattered leather jacket).
(149.) See BUNN, supra note 148, at 126-28 (explaining that Khan is venerated by some in Pakistan on nationalist grounds).
(150.) Id. at 128 (describing how Gotthard Lerch pocketed $3M while initiating the Khan network's first dealings with Iran). Urs Tinner, son of one of Khan's original suppliers, was turned by foreign intelligence networks, leading to the seizure of a ship filled with centrifuge parts headed for Libya. Id.
(151.) Id. at 142 (describing "the intense patriotism and devotion to duty of the vast majority of former Soviet nuclear workers"). Bunn makes a number of very specific, practical suggestions for increasing security at nuclear facilities. Id. at 141-56. I really hope people with power are listening to him.
(152.) China also has very close relations with another major proliferator, North Korea, whose Dear Leader Kim is or was fond of a variety of expensive Western luxuries (such as cognac) and notoriously short of ready cash. The involvement of the People's Liberation Army sub-groups in a variety of personally-profitable illegal enterprises, i.e., karaoke brothels and drug manufacturing, may be of concern given the close relationships between eroded cultural norms regarding bribery and organized criminal activity. Command and control is a challenge in every military organization. See WRAGE, supra note 100, at 32-35 for additional cases in the U.S., Canada, Mexico, and China where bribery, particularly at border control points, facilitated serious potential threats to national security.
(153.) Eduardo Salcedo-Albaran, Isaac de Leon-Beltran & Muricio Rubio, Feelings, Brain and Prevention of Corruption, 3(3) INT'L J. PSYCHOL. RES. 1, 14 (2008), available at http://ssrn.com/abstract=1391104 (last visited Aug. 2, 2010). Thanks to my colleague Kent Schenkel for calling this article to my attention.
(154.) See id. at 13.
(155.) See id. at 7. The insular cortex and amyglada regions of the brain are activated involving "mirror neurons." Id. at 1.
(156.) Id. at 8.
(157.) See id. at 12.
(158.) See id. at 9 (referring to examples of the Greeks perceiving Barbarians as not fully human, Spaniards' perceptions of new world Indians as "soulless" and Nazi perceptions of Jewish people as sub-human). For an excellent piece of scholarship historically documenting especially disgusting examples of the British racism that justified bribery of "black tyrants" in India during the Raj period, see ALA'I, supra note 13, at 883-84.
(159.) See SALCEDO-ALBARAN, DE LEON-BELTRAN & RUBIO, supra note 153, at 10.
(160.) Nicaragua Seizes Chinese Toothpaste, N.Y. TIMES ONLINE, May 28, 2007, at A6, available at http://www.nytimes.com/2007/05/28/world/americas/28toothpaste.html (last visited Aug. 2, 2010).
(161.) David Barboza, When Fakery Turns Fatal N.Y. TIMES, June 5, 2007, at C1, available at http://www.nytimes.com/2007/06/05/business/worldbusiness/05fakes.html (last visited Aug. 2, 2010).
(162.) Press Release, Mattel (Aug. 2, 2007), http://investor.shareholder.com/mattel/releasedetail.cfm?ReleaseID=258085 (last visited Aug. 2, 2010); Eric Lipton, Mattel Chief Apologizes for Flawed Toy Imports, N.Y. TIMES, Sept. 12, 2007, http://www.nyfimes.com/2007/09/12/business/ 12cnd-toys.html?_r=1&hp&oref=slogin (last visited Aug. 2, 2010).
(163.) David Barboza & Alexei Barrionuevo, Filler in Animal Feed Is Open Secret in China, N.Y. TIMES, Apr. 30, 2007, available at http://www.nytimes.com/2007/04/30/business/worldbusiness/30food.html (last visited Aug. 2, 2010).
(164.) Greg Allen, Toxic Chinese Drywall Creates a Housing Disaster (NPR radio broadcast Oct. 27, 2009), available at http://www.npr.org/templates/story/story.php?storyId=114182073 (last visited Aug. 2, 2010). See also Joaquin Sapien & Aaron Kessler, More Companies Knew About Tainted Drywall but Stayed Quiet- and Kept Selling It, (June 18, 2010), available at http://www.propublica.org/article/chinese-drywall-stinks-mums-the-word (last visited Aug. 2, 2010).
(165.) Elizabeth Spahn, As Soft As Tofu: Consumer Product Defamation on the Chinese Internet, 39 VAND. J. TRANSNAT'L L. 865 (2006).
(166.) HUANG, supra note 68, at 290.
(167.) Id. at 292 (discussing data showing business focus on government-sponsored "glory projects" rather than actual business issues).
(168.) See supra text accompanying notes 62-103.
(169.) HUANG, supra note 68, at 254-85.
(170.) Illegal logging in Indonesia, combined with porous bribery-infected border controls in Borneo, created a cycle of environmental degradation which undermined Malaysia's attempts to position itself as a responsible supplier of sustainably-harvested timber. WRAGE, supra note 100, at 59. The entire Indian tiger population at the Sariska reserve was poached in a two year period. Id. Hundreds of tons of chemical waste containing hydrogen sulfide in concentrated doses were dumped in locations near Abidjan, Ivory Coast, killing ten people and sending another 100,000 to the hospital with unknown long-term consequences. Id. at 59-60.
(171.) LAMBSDORFF, supra note 17, at 77 (citing Heinz Welsch, Corruption, Growth, and the Environment: A Cross-Country Analysis, 9 ENV'T & DEV. ECON. 663 (2004)).
(172.) Id. at 77-78 (citing additional studies on environmental impacts of corruption). See also LEANNE FARRELL ET AL., DIRTY METALS: MINING, COMMUNITIES AND THE ENVIRONMENT (Earthworks & Oxfam America 2004), available atwww.nodirtygold.org/pubs/DirtyMetals.pdf (last visited Aug. 2, 2010).
(173.) Ernesto Cabellos sells a 75 minute version of his Newmont Mining documentary for $348 on his website http://icarusfilms.com/new2003/cho.html (last visited Aug. 2, 2010). The 52 minute version is available for free on the UNESCO media library website at http://creafivecontent.unesco.org/media-library/product? usca%5fp=t&product%5fid=2533 (last visited Aug. 2, 2010).
(174.) Perlez & Bergman, supra note 52. Newmont spent $14 million to clean up the mercury and repair damage in the area, reaching financial settlements with some of the villagers. Other villagers attempted to recover additional damages in the U.S. District Court for Colorado in a case before Judge Herbert Stem. The plaintiffs, represented by L.A. based Engstrom Lipscomb & Lack, believed that part of the $9 million Newmont deposited in the account of its Peruvian lawyer never reached the villagers needing medical attention, ending up instead in Montesinos' pocket. Michael Riley & Greg Griffin, Newmont allows U.S. court to hear Peru toxic-spill suit, DENVER POST, Sept. 30, 2004, at G-01. Note the title of the Denver Post piece--the company "allows" the court to hear the case. My thanks to my New England Law/Boston seminar student Joseph Lack for calling my attention to the Yanacocha mercury spill case, and Todd Ames for his research updating the saga.
(175.) The corrupting effects of oil interests on the U.S. are certainly not confined to modern times, or any particular political administration. See, e.g., EATON MCCARTNEY, THE TEAPOT DOME SCANDAL: HOW BIG OIL BOUGHT THE HARDING WHITE HOUSE AND TRIED TO STEAL THE COUNTRY (2008). See also ROBERT BAER, SLEEPING WITH THE DEVIL: HOW WASHINGTON SOLD OUR SOUL FOR SAUDI CRUDE (2003) (former U.S. CIA official's description of the corrupting effects of Saudi money into internal U.S. political life).
(176.) Charlie Savage, Sex, Drug Use and Graft Cited in Interior Department, N.Y. TIMES, Sept. 10, 2008, available at http://www.nytimes.com/2008/09/11/washington/11royalty.html (last visited Aug. 2, 2010); Anne C. Mulkerne, Sex, Drugs Alleged in Oil Deals, DENVER POST, Sept. 11, 2008, available at http://www.denverpost.com/news/ci_10431998 (last visited Aug. 2, 2010). Pres. Obama described the corruption of the Interior department as a "too cozy" relationship between industry and regulators.
(177.) See Inquiry into the Deepwater Horizon Gulf Coast Oil Spill: Hearing Before the H. Comm. on Energy and Commerce, 111th Cong. 5-6 (2010) (statement of Rep. Henry Waxman, Chairman, H. Comm. on Energy and Commerce); see also David Scheffer, Op-Ed., BP Shows the Need for a Rethink of Regulation, FIN. TIMES (London), May 27, 2010, available at http://www.ft.com/cms/s/0/919f37fe69c1-11df-8432-00144feab49a.html (last visited Aug. 2, 2010) ("For some time the assumption has been that companies would regulate themselves and be competently monitored for the public good. Nothing could be further from the truth."). The Justice Department has begun civil and criminal investigations into the oil spill in the Gulf of Mexico. Helene Cooper & Peter Baker, U.S. Opens Criminal Inquiry Into Oil Spill N.Y. TIMES, June 1, 2010, available at http://www.nytimes.com/2010/06/02/us/02spill.html (last visited Aug. 2, 2010). Some early indications suggest the investigations could focus in part on whether the company violated federal safety regulations and misrepresented its ability to respond to a spill to government officials. See Richard A. Serrano, Feds Weigh a Criminal Probe of BP, L.A. TIMES, May 28, 2010, available at http://articles.latimes.com/2010/may/28/nation/ la-na-oil-spill-investigation-20100529 (Aug. 2, 2010).
(178.) Government officials estimated that, as of July 30, 2010, as much as 145 million gallons of oil may have spilled into the Gulf, making the spill the largest in U.S. history. Tom Zeller, Jr., Estimates Suggest Spill Is Biggest in U.S. History, N.Y. TIMES, May 27, 2010, available at http://www.nytimes.com/2010/05/28/us/28flow.html (last visited Aug. 2, 2010).
(179.) Ben W. Heineman, Jr., The Role of the Multi-National Corporation in the Long War Against Corruption, in CORRUPTION, GLOBAL SECURITY, AND WORLD ORDER 359 (Robert I. Rotberg ed., 2009).
(180.) Id. at 380-81.
(181.) Ethan S. Burger & Mary S. Holland, Why the Private Sector is Likely to Lead the Next Stage in the Global Fight Against Corruption, 30 FORDHAM INT'L L.J. 45, 58-59 (2006) (discussing the Council of Europe Civil Law Convention on Corruption (COE)).
(182.) Id. at 69.
(183.) See, e.g., W.S. Kirkpatrick & Co, Inc. v. Envtl. Tectonics Corp. Int'l, 493 U.S. 400 (1990).
(184.) See, e.g., In re Syncor ERISA Litigation v. Cardinal Health, Inc., 516 F.3d 1095 (9th Cir. 2008).
(185.) Peter Eigen, Fighting Corruption in a Global Economy: Transparency Initiatives in the Oil and Gas Industry, 29 Hous. J. INT'L L. 327 (2007); Publish What You Pay, http://www.publishwhatyoupay.org/ (last visited Feb. 25, 2009).
(186.) See Global Witness, http://www.globalwitness.org/pages/en/about_us.html (last visited Feb. 25, 2009); Lisa J. Laplante & Suzanne A. Spears, Out of the Conflict Zone: The Case for Community Consent Processes in the Extractive Sector, 11 YALE HUM. RTS. & DEV. L.J. 69, 103-05 (2008).
(187.) Trace International, Inc., https://secure.traceinternational.org/default.asp. TRACE is establishing an anonymous reporting tool through which companies can report demands. WRAGE, supranote 100, at 128.
(188.) Managers Sentenced to Jail in Elf Corruption Trial, DEUTSCHE WELLE, Nov. 13, 2003, http://www.dw-world.de/dw/article/0,,1028135,00.html (last visited Aug. 2, 2010); Hugh Schofield, Elf trial reveals moral vacuum, BBC NEWS, Apr. 24, 2003, http://news.bbc.co.uk/2/hi/europe/2973267.stm (last visited Aug. 2, 2010) ;John Tagliabue, At a French Trial, a Tale Unfolds of Graft on High, N.Y. TIMES, Apr. 18, 2003, available at http://www.nytimes.com/ 2003 / O4/18 /world/ at-a-french-trial-a-tale-unfolds-of-graft-on-high.html (last visited Aug. 2, 2010); David Ignatius, True Crime: The Scent of French Scandal, LEGAL AFFAIRS, May--June 2002, available at http://www.legalaffairs.org/issues/May-June-2002/ story_ignatius_mayjun2002.html (last visited Aug. 2, 2010).
(189.) David Crawford & Mike Esterl, Siemens Settlement Sets Off Criticism of German Inquiries, THE WALL STREET JOURNAL, Oct. 8, 2007, available at http://online.wsj.com/article/SBl19179176083751435.html?m (last visited July 6, 2010). See also Carter Dougherty, Germany Battling Rising Tide of Corporate Corruption, N.Y. TIMES, Feb. 15, 2007, available at http://www.nytimes.com/2007/02/15/business/worldbusiness/15scandal.html (last visited Aug. 2,2010).
(190.) For a pessimistic assessment of the chances of significant enforcement efforts by OECD member states, see Daniel K. Tarullo, The Limits of Institutional Design: Implementing the OECD Anti-Bribery Convention, 44 VA. J. INT'L L. 665 (2004). Professor Tarullo participated in the negotiations of the OECD convention for the U.S. But see WRAGE, supra note 100, at 117-18 (discussing Ross Hammond's computer game model on bribe-taking and paying, based on Thomas Schelling's models, showing some cause for optimism).
(191.) David Leigh & Rob Evans, BAE accused of secretly paying 1bn [pounds sterling] to Saudi Prince, THE GUARDIAN, June 7, 2007, available at http://www.guardian.co.uk/world/2007/jun/07/bael (last visited Aug. 2, 2010); Matthew Tempest, Dropping BAE inquiry vital to national interest, says Blair, THE GUARDIAN, Jan. 16, 2007, available at http://www.guardian.co.uk/world/2007/jan/16/bae.immigrationpolicy (last visited Aug. 2, 2010); David Leigh & Rob Evans, Scale of pressure to drop BAE inquiry revealed by ministers, THE GUARDIAN, Jan. 23, 2007, available at http://www.guardian.co.uk/world/2007/jan/23/bae.saudiarabia (last visited Aug. 2, 2010); Rob Evans & David Leigh, Goldsmith halted BAE deal on minor charges, THE GUARDIAN, Feb. 2, 2007, available at http:// www.guardian.co.uk/world/2007/feb/02/bae.saudiarabia (last visited Aug. 2, 2010); David Leigh & Rob Evans, BAE faces criminal inquiry in US over 1bn [pounds sterling] payments, THE GUARDIAN, June 14, 2007, available at http://www.guardian.co.uk/world/2007/jun/14/bae (last visited Aug. 2, 2010); Peter Walker, SFO wrong to drop BAE inquiry, court rules, THE GUARDIAN, Apr. 10, 2008, available at http://www.guardian.co.uk/world/2008/apr/10/bae.armstrade (last visited Aug. 2, 2010) ;James Sturcke, Lords rule SFO was lawful in halting BAE arms corruption inquiry, THE GUARDIAN, July 30, 2008, available at http://www.guardian.co.uk/world/2008/jul/30/bae.armstrade (last visited Aug. 2, 2010); David Leppard, She came, she saw, she scythed through the SFO, TIMES ONLINE, Feb. 1, 2009, http://business.timesonline.co.uk/tol/business/economics/article5627453.ece (last visited Aug. 2, 2010); Dan Atkinson, Lisa Buckingham & Tom McGhie, BAE told to plead guilty on bribery allegations or face trial, MAIL ONLINE, Sept. 5, 2009, http://www.dailymail.co.uk/money/article1211402/ BAE-told-plead-guilty-bribery-allegations-face-trial.html (last visited Aug. 2, 2010); Press Release, Serious Fraud Office, BAE Systems plc (Oct. 1, 2009), available a thttp://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2009/ bae-systems-plc.aspx (last visited Aug. 2, 2010).
(192.) The SFO: Faux Enforcement or First Real Step?, http://www.fcpablog.com/blog/2010/2/9/ the-sfo-faux-enforcement-or-first-real-step.html (Feb. 8, 2010, 17:45 EST).
(193.) Black Money (PBS Frontline television broadcast Apr. 7, 2009). The documentary on this sordid tale of the corruption and collusion of British and Saudi elites should be required viewing for all.
(194.) Financial Action Task Force (FATF), RBA C, uidance for Legal Professionals (Oct. 23, 2008), www.fatf-gafi.org/dataoecd/5/58/41584211.pdf; FATF, Money Laundering & Terrorist Financing Through The Real Estate Sector (June 29, 2007), www.fatf-gafi.org/dataoecd/45/31/40705101.pdf; FATF, RBA Guidance for Casinos (Oct. 23, 2008), http://www.fatf-gafi.org/LongAbstract/ 0,3425,en_32250379_32235720_41584371_1_1_1_1,00.html; FATF, Money Laundering & Terrorist Financing Vulnerabilities of Commercial Websites and Internet Payment Systems (June 18, 2008), http:// www.oecd.org/LongAbstract/ 0,3425,en_32250379_32237202_40997819_1_1_1_1,00.html; FATF, RBA Guidance for Real Estate Agents (June 17, 2008), www.fatf-gafi.org/dataoecd/18/54/ 41090722,pdf; FATF, RBA Guidance for Accountants (June 17, 2008), www.fatf-gafi.org/dataoecd/19/40/41091859.pdf; FATF, RBA Guidance for Trust and Companies Service Providers (TCSPs) (June 17, 2008), www.fatf- gafi.org/dataoecd/19/44/41092947.pdf.
(195.) Jeweler to the Royal Family of Great Britain, Asprey & Garrard, flew to Azerbaijan with six lavish gifts worth more than US $600,000 as part of the notorious Viktor Kozeny's (the "Pirate of Prague") outrageous bribery scheme to loot the very substantial oil reserves by bribing the Azerbaijani President. WRAGE, supra note 100, at 41-42. Jewelry often plays a significant role in grand corruption bribery schemes. See FATF, RBA Guidance for Dealers in Precious Metal and Stones (June 17, 2008), www.fatf-gafi.org/dataoecd/19/42/41012021.pdf.
(196.) Rochelle Meddoff, Bring Out the Big Guns: Using International Law for FCPA Prosecutions Broadens the Availability of Foreign Discovery Mechanisms (Dec. 2008) (unpublished student paper) (on file with author).
(197.) Robert I. Rotberg, Leadership Alters Corrupt Behavior, in CORRUPTION, GLOBAL SECURITY, AND WORLD ORDER 341 (Robert I. Rotberg ed., 2009).
(198.) Johann Graf Lambsdorff, The Organization of Anti-Corruption: Getting Incentives Right, in CORRUPTION, GLOBAL SECURITY, AND WORLD ORDER 389 (Robert I. Rotberg ed., 2009). I'd also urge reform strategists to take a look at Xin Frank He's very insightful analysis. Xin Frank He, Sporadic Law Enforcement Campaigns as a Means of Social Control: A Case Study from a Rural-Urban Migrant Enclave in Beijing, 17 COLUM J. ASIAN L. 121 (2003) (discussed in Spahn, supra note 1, at 215-20).
(199.) But see Task Force on Gatekeeper Regulation and the Profession--Task Force Actions and Related Documents, http://www.abanet.org/crimjust/taskforce/actions.html (last visited Aug. 2, 2010). For a list of articles discussing the ABA Gatekeeper Initiative Task Force, see Task Force on Gatekeeper Regulation and the Profession -Articles, http://www.abanet.org/crimjust/taskforce/articles.html (last visited Aug. 2, 2010). See Stephanie Bendshai, Corporate Gatekeeper Liability in Canada, 42 TEX. INT'L L.J. 441 (2007) ; John W. Brooks & Roberta Vassallo, Attorney Cathy's Continuing Quandary, or, Can the Gatekeeper Initiative be Reconciled with the Multi-Jurisdictional Practice of Law?, 41 INT'L LAW. 59 (2007); Rebecca Gregory, The Lawyer's Role: Will Uncle Sam Want You in the Fight Against Money Laundering and Terrorism?, 72 UMKC L. REV. 23 (2003).
(200.) Wrage also sees the analogy between changing public tolerance of slavery and bribery in an especially well written analysis. WRAGE, supra note 100, at 113. She also makes a very persuasive case for an analogous global public opinion movement away from tolerating piracy. Id. at 112.
ELIZABETH SPAHN, Professor of Law, New England Law I Boston. I am very grateful to Sandra Lamar, Research Librarian at New England Law I Boston for producing the PowerPoint victims' photographs slide show. Thanks also go to my invaluable research assistants, Rochelle Meddoff and Andrew Sabino, to my colleague Kent Schenkel, and Rafael S. Mena. [c] 2010, Elizabeth Spahn.