Developing an Anti-Corruption Program for SME’s: Role of USG Agencies, International Financial Institutions, and NGO’s

Let me start by thanking the overseas private investment corporation and the U.S. Department of Commerce for organizing this important seminar, and my personal thanks also to OPIC president and CEO Robert Mosbacher and Commerce General Counsel John Sullivan for their support.

I am honored to be part of this distinguished panel that will discuss why and how the U.S. government, international lending institutions, NGO’s, and others are fighting corruption globally and why it is important that we create a partnership with the private sector in this struggle.

The previous panel discussed compliance with the foreign corrupt practices act (FCPA), a seminal piece of legislation that has prohibited transnational bribery since 1977. The Justice Department and the U.S. government have been rightfully vigorous in pursuing allegations of bribery and in attacking the supply side of corruption. But to level the playing field, we need the governments of our foreign competitors to play by the same rules that we impose on U.S. companies. It wasn’t that long ago when it was legal in most OECD countries for companies to pay bribes to foreign officials to secure contracts, licenses, or favorable judicial decisions, or to avoid taxes or environmental regulations. Legal -- and I may add, even tax deductible in the home countries of many major multinationals based in the industrialized world.

But that changed in November 1997 with the adoption of the OECD anti-bribery convention by 36 nations, including five non-OECD members, which altogether account for more than two-thirds of global exports. The OECD convention is an important tool in fighting corruption because all signatories have agreed to criminalize foreign bribery so that all competitors are held to the same standard. The convention is a clear statement to companies from the leading industrialized nations that their complicity in corruption through paying bribes must end.

As we approach the 1o^th anniversary of the signing of the OECD convention, I am encouraged by the commitment the G-8 has made to broaden and deepen efforts to drive out corruption, tackling the supply and demand aspects of the problem from many angles and with multiple tools. Since the 2002 kananaskis summit, G-8 leaders have recognized that important objectives, such as the millennium development goals, promoting trade and investment, and even achieving energy and national security goals, cannot be fully accomplished without confronting corruption. G-8 efforts are guided by these core principles:

That there is a need to establish rules-based and transparent government systems with judicial, legislative and oversight bodies that are independent and provide checks and balances;

That enforcement should be effective at all levels. In other words, no one is above the law;

And that combating corruption is a shared responsibility of government, the private sector, and civil society, including the media.

The G-8 has thus embarked on a mission to develop a framework through which to manage, monitor and implement initiatives and other efforts to combat corruption, which also includes development finance, debt relief, and energy security.

At the Evian summit in 2003 and the Sea Island Summit in 2004, the G-8 focused on building a strategy to promote full budget transparency -- revenues and expenditures -- as well as procurement and concession-letting transparency. The strategy included strengthening enforcement of the OECD anti-bribery convention and anti-bribery disciplines on companies applying for export credits, asset recovery and visa denials for corrupt officials, and ratifying and implementing the un convention against corruption (UNCAC).

At the Gleneagles summit in 2005, and again in St. Petersburg in 2006, the G-8 strongly endorsed and renewed its commitment to fully implement the extractive industries transparency initiative (EITI) of 2002, which was created to enhance transparency and thus accountability in resource-rich countries through full publication and verification of company payments and government revenues from the oil, gas and mining sectors. The EITI is a multi-stakeholder initiative comprised of exporting countries, companies, civil society, and countries providing development or lending assistance. EITI is an important part of fighting kleptocracy, as it helps create an environment that deters leaders from stealing billions of dollars from their countries, and with the money, their people’s hopes and dreams. In this way, EITI complements president bush’s national strategy to internationalize efforts against kleptocracy, which stresses responsibility among all countries to bring kleptocrats and their enablers to justice, denying them or their assets safe haven abroad.

We also recognize that lack of transparency and corruption are problems that do not exclusively reside in developing countries with extractive resources. There is much that industrialized countries can and should do to make sure we do not encourage corruption around the world. Again the united states has been at the vanguard of this movement. We began showing the way 30 years ago with the passage of the FCPA in 1977, and we continue leading by example as shown by our speedy ratification of the united nations convention against corruption by the senate in September 2006, which made good on our G-8 pledge to implement the convention, a pledge that others have yet to fulfill.

The UNCAC, which entered into force in 2005, provides a comprehensive, global framework for confronting the transnational challenge of corruption. It has been signed by more than 140 countries and ratified by almost 100, raising the prospects of truly global cooperation and impact. The U.S. is pressing others to implement the convention, and we are working hard to make it effective. We actively participated in the first conference of the states parties to UNCAC that was held in Amman, Jordan in December 2006 and are preparing for the first meeting of the UNCAC working group on technical assistance that will be held in Vienna next week. The working group will review countries’ needs for technical assistance based on a self-assessment checklist approved at the December 2006 conference, establish priorities, and promote coordination of assistance to avoid duplication. We are also participating with 15 other countries in a pilot review project, to help develop a sound mechanism for review of implementation.

Another tool in our fight against corruption is the millennium challenge account (MCA). Although Sherri Kraham will be addressing the work of the millennium challenge corporation, which administers the MCA I did want to highlight its role as a catalyst for change in the developing world, particularly in the area of stimulating strong anti-corruption policies. In 2002, president bush proposed creating the MCA to reduce poverty through sustainable economic growth by providing large grants, called compacts, to countries that demonstrate strong performance relative to their income group peers on 17 indicators. Of these 17 indicators, “control of corruption” is the only hard hurdle among the MCC selection criteria, meaning that countries must perform better than the median on anti-corruption policies in order to qualify for an MCC compact. To provide further incentive for reform and help additional countries qualify for compacts, MCC provides threshold assistance to countries that fall just short of compact eligibility. Because control of corruption is a hard hurdle, this often means helping them to address corruption. Eleven of MCC’s 14 active threshold programs are focused on corruption. These eleven anti-corruption threshold programs are worth over 250 million dollars, making the U.S. one of the largest bilateral donors for anti-corruption programs.

We also use other instruments big and small to eradicate corruption and to promote transparency and good governance, whether it’s through usaid bilateral assistance that sponsors a wide range of anticorruption programs and integrates them in sectors such as health and education, or working with the imf and the world bank to promote, for example, strengthening the world bank’s anti-corruption strategy. This strategy includes publicizing the list of companies barred from doing business with the bank, and strengthening the bank’s department of institutional integrity as called for recently by the volcker report.

The U.S. promotes transparency in trade administration to eliminate corruption and lower transaction costs. Our trade and investment agreements have strong anti-corruption and transparency commitments. We have also worked with partners in other fora including the organization of American states, the Asia pacific economic cooperation (APEC) forum, and the OECD-UNDP “good governance for development in Arab states” initiative. Very shortly we will be joining other OECD countries in launching a new initiative called the “partnership for democratic governance” whose goals are to strengthen government institutions in emerging democracies and to help these governments become more accountable and responsive to their publics.

I want to end by recognizing that progress has been slow in many areas. We would like everyone to move with the same vigor and alacrity as the U.S. but that simply is not possible. But have no doubt -- we are committed to leveling the playing field for U.S. business.

I am optimistic because we have made great progress in the last ten years. Think about it, the UNCAC would have been considered an impossible dream ten years ago, yet negotiations that only started in January 2002 resulted in an agreement that has been signed by 140 countries. As we move toward the second conference of states parties in Indonesia in December, our goal is to have it ratified by all the industrialized countries. The U.S. will also continue to insist that countries that are signatories of the OECD anti-bribery convention effectively carry out their obligations.

Beyond that, we firmly believe that there is a strong connection between good governance and higher per capita incomes, between transparency and attracting investments by reducing risks, between transparency and more efficient use of domestic public resources. Public productivity supports private productivity, which in turn drives growth.

Fighting corruption is an ongoing and deliberate process. Together we can create a better future by continuing our united efforts against corruption and building societies where all individuals can be governed with the highest level of integrity.

Thank you.