CREDIT: <a href="">Maako Tazawa</a> (<a href="">CC</a>).
CREDIT: Maako Tazawa (CC).

Policy Innovations Digital Magazine (2006-2016): Innovations: Business Ethics Gone Without TRACE

Feb 29, 2008

"We are old friends by now," says the official, spooning sugar into his coffee. "And friends take care of each other."

He places the sugar bowl back on the silver tray and slides it toward you. "We are friends, aren't we?" he asks when you hesitate. "As friends, we would like to help you, because as friends we know you will help us."

You are by no means friends, though this is your third meal together. It is the first served in the privacy of his office at the ministry of public works. This is your third visit to his country and your twelfth month of work to secure a contract to build a bridge and a stretch of highway. Your company has invested thousands of man-hours and hundreds of thousands in travel and consulting costs while competing for the job. You have made it to the final round on the strength of high technical scores and a competitive price, but those strengths were not enough to forestall this conversation.

If the scene took place in Nigeria, the official probably would ask, "Are you going to smile on me?" In other African countries he might ask for "tea money." If it were in Thailand, he might inquire, "Are you going to make me happy?" In Jordan, the official might discuss the cost of educating a son in the United States and ask about company scholarships. Every society has its own vernacular for conversations about bribery.

I have worked with companies trying to avoid these scenes—and these payments—for almost 15 years. Once the solicitation is made, there are no good options left. You could express your shock and dismay to the minister: "Forgive me! I thought for a moment you were soliciting some kind of payment for yourself, but I was unjust. It is far beneath the dignity of your office to do such a thing."

Or you could walk away from the deal, but when you walk away you lose the months and millions that have been invested in the project. Moreover, by walking away you assure that the bridge or hospital or air traffic control system will be built by a contractor who did pay a bribe to win the job. They weren't able to win it on their merits, and they will likely find that this demand turns out to be the first in a long series, as many officials follow the example set by their minister.

The citizens of the country are usually the biggest losers, left with shoddy infrastructure for which they paid an inflated price. The bribe-taking officials, on the other hand, usually funnel enough of their profits to offshore accounts so that even exile from their homeland will mean a long and comfortable retirement.

I established TRACE to enable companies to address commercial bribery collectively—to share information, to exchange best practices, to have an emissary that could speak to corrupt officials, their customers, without fear of alienating them. Major multinationals cannot easily meet with ministers of health, or defense, or petroleum and suggest that corrupt demands stop. TRACE, as a neutral third party, can.

The message of individual companies must be tempered so as not to offend. The message of TRACE is strengthened because we speak for more than 100 multinational companies and more than 1,000 small and medium-sized enterprises and sole proprietors. The message of individual companies can seem "too western" or even "too American," or as an effort to bully the leaders of sovereign states. TRACE reminds these officials that bribery has been criminalized by five major international conventions, including the United Nations, and that their own government has the obligation to embed these new standards in their domestic laws.

Bribes are risky and expensive. Well-run companies with good products prefer to steer clear of bribes: inappropriate payments, kickbacks, slush funds, baksheesh, and grease. Many companies are confident that they could win business in a fair fight, but these same companies are reluctant to raise the issue of corrupt business practices with their commercial competitors. The primary source of information on local business practices becomes the bribe-taking government officials.

While I recognize that bribery undermines democracy, poverty alleviation, and confidence in public institutions, I chose to focus TRACE's efforts on increasing transparency in commercial transactions. TRACE serves two groups in the business community—multinational companies and their commercial intermediaries: sales agents, local representatives, distributors, consultants, suppliers, and so forth. Within this community, TRACE can have a considerable impact on supply-side bribery, training members on the financial, legal, and reputational risk associated with bribery.

As a neutral third party, TRACE can work with commercial competitors to address the challenges they all face. The membership model enables TRACE to develop and provide cost-effective services—training, due diligence reports, model policies—because the costs and best practices are shared by all members.

Over time, TRACE has not only researched and reported on international standards in this field, but also shaped them, bringing greater clarity to an area of uncertainty. If a lavish gift to a government official might be deemed a bribe, who defines "lavish"? If a government official asks for help obtaining a visa, is he asking for a favor or a bribe? If potential customers are touring your factory in southern California on a Friday afternoon, can you invite them to Disneyland the next day to build goodwill, or must you end the meeting with an abrupt handshake once the tour is complete?

TRACE member companies have grown increasingly confident in the organization's services and its antibribery message, and they have begun to ask TRACE to lead new initiatives in this field. In 2006, four major oil and gas companies worked with TRACE to design antibribery training for employees and their government points of contact in Equatorial Guinea. The companies hosted the event and invited key government officials to the table, but I was able to deliver an antibribery message that may have been too difficult for the companies to deliver.

I have led similar conferences for groups of 50 to 100 people in Yemen and Nigeria. In January 2008, we were halfway through a two-day event in N'Djamena, Chad when rebels marched on the capital and we were forced to evacuate to Cameroon. High levels of bribery often coincide with high levels of political instability. Interestingly, the media coverage of the situation emphasized Chadian frustration with corruption.

Antibribery compliance has grown more sophisticated and member companies have begun to target their efforts to problem spots. To support this, TRACE launched in 2007 to gather data on the nature and frequency of bribes. Bribe demands can be reported anonymously in 21 languages and the results are collated and reported to the public.

It is not enough for a company to know that a country has a high level of bribery. Are there large numbers of low level demands by customs officials? By the police? Or are the demands more likely to be for very large amounts and requested by officials at the highest levels? With this information, companies can train the right employees and put audit and other controls in place to minimize risks. It has been notoriously difficult to get data on bribery as a criminal activity, but BRIBEline is changing that.

The key to TRACE's success to date has been our emphasis on the business community's shared interest in greater transparency. Although bribery can be toxic to communities and trigger significant ethical issues, our members trust us to find business-friendly solutions to the problem: direct communications with government, industry-specific training, dissemination of effective techniques, and case studies.

Participants at workshops as far-flung as Quito and Bangkok have approached me afterward to tell stories of their own experience with bribery and to thank TRACE for keeping the issue in front of the government and the local business community. I also frequently hear what many companies do not—that people living in countries with high levels of bribery know which companies are lining the pockets of elected officials and which companies are resisting.

Companies that do not resort to bribery in even the most challenging markets will reap the benefits of enhanced reputation, reduced risk, and greater employee morale. TRACE is eager to work with such companies.

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