Doing Business Overseas? Then Let’s Talk about Corruption

Editor’s note: “International Business Corner” is a weekly column written by Joan Keston that provides information for people involved in or considering international operations. Keston is an international business consultant. Over the next several months she will be writing about important issues that international businesses face as they compete in the 21st century global business environment. This article is part of a series that addresses corruption.

RALEIGH – Corruption: moral perversion, depravity, perversion of integrity, bribery, corrupt or dishonest proceedings, any corrupting influence or agency. Bribery: money or other valuable consideration given or promised with a view to corrupting the behavior of a person, as a public official.

The definition of corruption embodies a negative morality. Taken within a business setting, that translates into bribery, illicit influencing and dishonest proceedings. Most countries have legislation defining corruption that interprets those words and applies them to specific acts or promises to act. That legislation is based upon the ethical values, legal principles and business culture of the country. In addition to anti-corruption legislation, transparency in governmental proceedings and financial management is very effective in discouraging corruption.

Transparency International Guidance

Transparency International publishes a Corruption Perception Index that ranks countries based on the degree to which corruption is perceived to exist among public officials and politicians. It defines corruption as the abuse of public office for private gain. The scores range from 0 (highly corrupt) to 10 (highly clean), with scores below 3 indicating rampant corruption. Following are the scores of several countries:

• Denmark, 9.4
• Singapore, 9.3
• UK, 8.4
• Germany, 7.8
• Japan, 7.5
• US, 7.2
• Brazil, 3.5
• China, 3.5
• India , 3.5
• Russia, 2.3
• Iraq, 1.5

Corruption and Poverty

There is a correlation between corruption and poverty levels. In countries where patronage and nepotism characterize public institutions, an investment of resources and an evolution of the social and political culture are essential to change the system to one of merit. Sustainable governing institutions, transparency in government and financial management, enforcement of anti-corruption legislation, and an independent and professional judiciary are milestones in a country’s development and fight against corruption.

A Global Problem

There is a strong international dimension to corruption. Bribery in developing countries often stems from multinationals based in the richest countries. Global financial centers play a role in allowing officials to move, hide and invest illicitly gained wealth. Principals and ethics vary between countries. Interestingly, the US accepts domestic political or legislative influencing practices such as lobbying and campaign funding, while considering the same underlying activities corrupt in other countries. The responsibility to combat corruption is global and no country can hold itself above the solution.

Anti-Corruption Legislation

Several important conventions have been ratified by countries over the past decade that impact the domestic legislation in those countries:

• Organization for Economic and Cooperative Development (OECD) Convention
• Organization of American States (OAS) Convention
• Council of Europe (CoE) Convention

As a U.S. entity you must be aware of both the US legislation and the legislation of the countries where you do business, and the history of enforcement of that legislation.

Navigating in Developing Countries

Navigating in countries with a score indicating high levels of corruption is difficult. As countries progress along the development spectrum, corruption tends to decrease. Doing business in these countries may often be confusing as the evolutionary process is fraught with inconsistencies. In an effort to protect your self, it is essential that you are:

• Familiar with anti-corruption legislation and its enforcement where you do business
• Familiar with the US Foreign Corrupt Practices Act
• Know your business associates and partners where you do business
• Take an active role in education, compliance and due diligence

An often necessary conclusion in certain circumstances is the refusal to proceed with the business transaction or relationship.

About the Author

Joan Keston is the Managing Principal of Keston & Associates, Ltd., an international business consulting firm located in Raleigh, NC, and a Partner at Paladin and Associates, Inc. She has 25 twenty-five years of experience with mature as well as entrepreneurial companies, domestically and internationally, coupled with an executive managerial and legal background. Her firm facilitates international business transactions, and assists companies establish, grow and integrate their international operations. She can be reached at (919) 881-7764 and jkeston@kestonassociates.com