Presentations in hand, six members of a U.S. architecture firm flew to London this year to meet with a high Russian provincial official. About three months earlier, the politician had asked the firm to submit a proposal to develop a waterfront area in the province. But when the architects arrived, the official declared that well before he had even met the Americans, he had promised the right to develop the property to a Russian concern.
Of course, the official assured the architects, they could contact the Russian developer and buy the rights to the property — the implication being that the politician would pocket a share himself. Had the Americans taken the bait, that would have been “the beginning of a long process of being shaken down,” according to former congressman Sam Gejdenson, who heads an international-business consultancy that has worked with the architecture firm.
By many accounts, that experience is common in the former Soviet Union. During Peter Sprung’s tenure as a senior legal advisor to the U.S. Ambassador to the Republic of Georgia from 1999 to 2000, irate representatives of U.S.-based multinational companies often asked the embassy to intervene with the local government to stop the bribery. The executives would not only complain that they were being shaken down, said Sprung, now director of litigation and fraud-investigation services at BDO Seidman in New York, but also that “their competitors were less scrupulous than they were.”
Indeed, the lack of a level playing field has long been a complaint of U.S.-based companies doing business in many regions where bribery is rampant. Currently, experts rate Bangladesh, Haiti, Nigeria, Chad, Myanmar, Azerbaijan, and Paraguay at the bottom, according to Transparency International’s recently published 2004 Corruption Perceptions Index. Each of those countries received a rating of less than 2 out of 10. Georgia received a rating of 2.0; Russia received a rating of 2.8.
Despite stepped-up anti-corruption regulation in the United States and attempts to persuade other countries to enforce such rules abroad, however, large deals are falling through if they lack the requisite “sweeteners.” Between May 1, 2003, and April 30 of this year, for instance, the competition for 47 contracts worth $18 billion “may have been affected by bribery by foreign firms of foreign officials,” according to a report issued in July by the Department of Commerce. U.S. firms lost at least eight of the contracts, worth $3 billion. During the same period a year earlier, added the Commerce Department, 40 contracts worth $23 billion may have been affected.
Meanwhile — swayed by a potent cocktail of regulatory, disclosure, and compliance ingredients — U.S companies are finding themselves under increasing pressure to uncover bribes paid by their foreign subsidiaries.
Tougher Regulation at Home Than Abroad
Indeed, the regulatory gap between the United States and the rest of the world seems to be widening. All 35 countries that signed provisions of the Organization of Economic Cooperation and Development’s 1997 convention now have laws that make it a crime to bribe foreign officials. And yet “there has been little enforcement of new laws by national governments, other than the United States,” wrote Fritz Heimann, chairman of the U.S. branch of Transparency International, a nongovernmental organization that aims to combat global corruption. “There is insufficient awareness in the business community that foreign bribery has become a crime, and relatively few non-U.S. companies have adopted anti-bribery compliance programs.”