[House Hearing, 106 Congress]
[From the U.S. Government Printing Office]




          THE FIGHT AGAINST CORRUPTION: THE UNFINISHED AGENDA

=======================================================================

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                        INTERNATIONAL RELATIONS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 20, 2000

                               __________

                           Serial No. 106-185

                               __________

    Printed for the use of the Committee on International Relations


        Available via the World Wide Web: http://www.house.gov/
                  international--relations

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
69-716                      WASHINGTON : 2001




                  COMMITTEE ON INTERNATIONAL RELATIONS

                 BENJAMIN A. GILMAN, New York, Chairman
WILLIAM F. GOODLING, Pennsylvania    SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa                 TOM LANTOS, California
HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska              GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey     ENI F.H. FALEOMAVAEGA, American 
DAN BURTON, Indiana                      Samoa
ELTON GALLEGLY, California           MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida         DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina       ROBERT MENENDEZ, New Jersey
DANA ROHRABACHER, California         SHERROD BROWN, Ohio
DONALD A. MANZULLO, Illinois         CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California          ALCEE L. HASTINGS, Florida
PETER T. KING, New York              PAT DANNER, Missouri
STEVE CHABOT, Ohio                   EARL F. HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South     BRAD SHERMAN, California
    Carolina                         ROBERT WEXLER, Florida
MATT SALMON, Arizona                 STEVEN R. ROTHMAN, New Jersey
AMO HOUGHTON, New York               JIM DAVIS, Florida
TOM CAMPBELL, California             EARL POMEROY, North Dakota
JOHN M. McHUGH, New York             WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas                   GREGORY W. MEEKS, New York
RICHARD BURR, North Carolina         BARBARA LEE, California
PAUL E. GILLMOR, Ohio                JOSEPH CROWLEY, New York
GEORGE RADANOVICH, California        JOSEPH M. HOEFFEL, Pennsylvania
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
                    Richard J. Garon, Chief of Staff
          Kathleen Bertelsen Moazed, Democratic Chief of Staff
     Hillel Weinberg, Senior Professional Staff Member and Counsel
                   Shennel A. Nagia, Staff Associate




                            C O N T E N T S

                              ----------                              

                               WITNESSES

                                                                   Page

Kwasi Abeasi, Director-General, Private Enterprise Foundation, 
  Ghana, Assistant Governor, Rotary District 9100 (Africa).......     9
Fritz Heimann, Chairman, Transparency International USA..........     7
Robert Klitgaard, Dean, Rand Graduate School.....................    15
Roberto de Michele, Ministry of Justice and Human Rights, 
  Argentina......................................................    13

                                APPENDIX

Prepared statements:

Hon. Christopher H. Smith, a Representative in Congress from the 
  State of New Jersey............................................    29
Kwasi Abeasi.....................................................    34
Fritz Heimann....................................................    30
Robert Klitgaard.................................................    50

 
          THE FIGHT AGAINST CORRUPTION: THE UNFINISHED AGENDA

                              ----------                              


                     WEDNESDAY, SEPTEMBER 20, 2000

                  House of Representatives,
                      Committee on International Relations,
                                                    Washington, DC.
    The committee met, pursuant to call, at 2:20 p.m. in Room 
2172, Rayburn House Office Building, Hon. Benjamin A. Gilman 
(Chairman of the Committee) presiding.
    Chairman Gilman. The Committee on International Relations 
meets today in open session to receive testimony on ``The Fight 
Against Corruption: The Unfinished Agenda.''
    We have a distinguished international panel, and I want to 
welcome you all today. I will introduce you shortly. I also 
want to note that we are disseminating this hearing over the 
Internet at the same time as we are taking your testimony.
    The Committee on International Relations has a long-
standing interest in the problem of international corruption. 
We are, of course, concerned with the problems that our 
American firms face when they are required to compete in 
foreign markets against companies which are able to give 
bribes. We don't want to see Americans disadvantaged and 
markets lost.
    But this is not the sole reason or even the main reason for 
our Committee's concern. A fundamental goal of American foreign 
policy is the promotion of growth and stability abroad, because 
it is good for our Nation, and it is good for the individual 
human beings around the world. Corruption, though, undermines 
the basis of that growth and stability, particularly in the 
developing world. It deters investment, it wastes precious 
external and internal resources, it demoralizes entrepreneurs 
and ordinary citizens who deserve good government. Corruption 
defeats democracy because those corruptly enriching themselves 
will be unwilling to turn power over to democratically elected 
successors. They therefore have an added incentive to entrench 
themselves in power. The corrupt have an additional unfair 
advantage because their ill-gotten gains provide them with the 
resources to widen their advantages over any opposition.
    It is clear, however, that tremendous progress has been 
made in recent years on this issue. The private sector, led by 
organizations such as Transparency International, has done a 
tremendous job in nurturing grassroots networks in support of 
anticorruption efforts. The government, business and 
individuals supporting efforts such as those by TI have really 
begun to pay off.
    Brave and able government authorities have shown that in 
many governments, impunity for the corruption is a thing of the 
past.
    The current administration deserves both high marks for its 
efforts on several fronts. It led the consensus that achieved, 
among other things, the OECD Anticorruption Convention. 
Diplomatically and through the development assistance program, 
it supported a wide range of anticorruption efforts, and has 
prevented the anticorruption movement from becoming a name-
calling, us-versus-them exercise.
    International organizations such as the OECD and OAS have 
also played extremely important roles.
    Present in our audience today and at the witness table are 
many individuals who will be taking part in an anticorruption 
summit tomorrow through Saturday over in Arlington. I want to 
thank the participants for their very important work they are 
doing, along with our colleagues who could not travel there. We 
will be doing all we can to support you.
    I especially want to thank the conveners of the conference, 
the International Consortium on Governmental Financial 
Management, its supporters and sponsors, such as AID and GAO, 
those from our government and international organizations who 
will be addressing them, and particularly Jim Wesberry of 
Casals, who is busy coordinating the conference, but has found 
time to advise the Committee on this hearing.
    I also want to salute our Ranking Democratic Member, the 
gentleman from Connecticut, Mr. Gejdenson, who sponsored the 
legislation that was recently passed in the House and which 
should go to the President soon that is reemphasizing and 
strengthening our government's anticorruption efforts.
    We question where has the most progress been made and what 
needs to happen next? Surely the conclusion of the OECD and the 
Inter-American Conventions are highlights of the recent years.
    However, the administration reports on the status of the 
OECD Convention makes it clear that much still needs to be done 
to choke off the supply of corrupt dollars flowing from rich 
nations to the rulers of the developing nations. The Convention 
will not work if it is not transposed into a good national law 
and those laws are not enforced.
    In that regard, the OECD needs to step up its monitoring 
and enforcement efforts. In addition, our OECD partners need to 
establish internal corporate and accounting controls in 
businesses resident in their various nations, for without a 
paper or electronic trail, there will be no way to prosecute 
those who would ignore or violate the standards of this 
important Convention. We need more tangible actions and less 
lip service from Convention signatories.
    I would also call on other key exporting nations in all 
regions of the world to consider joining this Convention and 
strengthening their supply-side anticorruption efforts. More 
attention needs to be addressed to developing institutions in 
developing countries so that they can do more for themselves 
and in cooperation with other nations and with international 
organizations to build structures and effective public opinion 
against corruption.
    We need to consider more carefully how to help the 
countries of the former Soviet Union and in the former Soviet 
bloc deal with the vast array of ills that are exacerbated by 
corruption, and we need to address those problems squarely.
    Our panelists today are going to offer their own 
perspectives of what the most important remaining problems are 
and on where we need to go. We can theorize about this, but, to 
do our best job, we need to hear the voices of those involved 
in the struggle. So, again, we thank our panelists for being 
here. After other Members make whatever comments they may wish 
to offer, I will introduce our panelists.
    At this time I call on our Ranking Minority Member, the 
gentleman from Connecticut, Mr. Gejdenson.
    Mr. Gejdenson. Thank you, Mr. Chairman. It is clear that 
America's leadership in anticorruption issues started in the 
early and mid-1970's with the Foreign Corrupt Practices Act. I 
can remember companies in my own State complaining about being 
handcuffed in those days as a result of our restrictions on 
bribery to foreign government officials, how it disadvantaged 
us. But I would say that time has won them over to our side, 
most of the companies I talk to are, obviously, not happy in 
situations where other governments, even some of our closest 
allies like France, apparently, allow the deductibility of 
bribes in contract competition. They have made us a commitment 
they will repeal the deductibility of bribes given, and I think 
American companies now get that it is the right course of 
action.
    We need to only look at not just what has happened in our 
hemisphere. In Africa and Asia, democracies are threatened by 
corrupt practices of the government. The new democratic 
government in Nigeria is struggling to undo decades of corrupt 
action by military leaders who plundered billions of dollars 
from a very wealthy country, left their people impoverished and 
a failing infrastructure.
    We can see the impact on American business as well in 
estimates that as much as $26 billion may have been lost in the 
last 6 years alone. I can tell you from small and large 
companies in my own State, that oftentimes we find our closest 
allies bending, if not breaking, the rules of international 
commerce with financing mechanisms or other encouragements 
that, if not bribes, come darn close to bribes. Nobody wins in 
this process.
    But I am heartened to see that the effort started by the 
Vice President at the Global Conference on Fighting Corruption 
has begun to take hold, that the G-7 is ready to take important 
action, that the action that this Congress passed with my 
legislation with the strong support of the Chairman on 
anticorruption issues is an important beginning.
    What I want to make sure people understand is this is not 
just about making American companies more competitive. It is 
that. We want American companies to win when they are in an 
economic competition. But if we believe in democracy, and we 
want to build a system where the world has faith in its elected 
leaders, we need to make sure that we get rid of corruption. 
Corruption undermines democratic institutions, belief in 
organized government, and it is something we all need to fight. 
So we are thrilled to have all of you here and look forward to 
hearing from you in your many perspectives.
    Mr. Smith.
    Mr. Smith. Thank you, Mr. Chairman. I want to thank you for 
holding this very timely and important hearing on the issue of 
combatting corruption, clearly a threat to global peace, 
stability and prosperity, but particularly challenging to those 
nations struggling to develop democratic institutions and the 
rule of law.
    The Helsinki Commission, which, as you know, I chair, has 
undertaken a series of hearings on this important topic, 
examining the breadth and the depth of the problem in the OSE 
region and what steps the OSE can take as an institution to 
combat corruption and organized crime.
    Mr. Chairman, the cancer of corruption and organized crime 
undermines public confidence in government and threatens 
development of the rule of law in the very countries that are 
trying to shed the legacy of communism and its corrupt and 
repressive system.
    Widespread corruption in the transition countries threatens 
their ability to provide strong and independent legal regimes, 
market-based economies and social well-being for their 
citizens. Corruption has stymied economic reforms in these 
countries and impeded efforts to improve the standards of 
disadvantaged peoples.
    In the absence of the effective rule of law, Mafias have 
flourished through their corrupt connections, gaining powers 
over whole sectors of economies and derailing legislative 
reform agendas inimical to their interests.
    I would note that on July 17th, President Constantinescu 
decided not to run in Romania for a second term, deciding 
instead to devote his full time to the fight against 
corruption. But he made the point that ``when I began this 
campaign, I discovered a Mafia system had been created in 
Romania in which the octopus-like front companies were 
benefitting from high-level state institution support. This is 
what made possible the fraudulent bankrupting of banks, the 
destruction of the fleet, and the huge damage caused by the oil 
and chemical-fertilizer Mafias and the unrestricted growths of 
corruption.''
    A recent EBRD report recognizes the reality of corruption 
and calls for greater efforts among governments and 
international organizations to depoliticize economic activities 
and develop measures to constrain state capture by private 
interests. As a result of this capture and siphoning off of 
public wealth, citizens deprived in some cases of government-
sponsored basic support mechanisms have formed very negative 
opinions about democracy and free markets.
    Mr. Chairman, as a concrete example, during a Commission 
hearing in March of this year regarding the human rights 
situation in Turkmenistan, one of the most authoritarian and 
repressive regimes in the region, opposition leader Avdy Kuliev 
cited three components of President Niyazov's internal 
politics, the first of which was corruption.
    The fact that this Committee again is holding this hearing 
and talking about corruption not solely in an economic sense, 
but corruption in government and in public institutions, is in 
itself refreshing. For a long time we could not even utter, or 
some people did not want to utter, the ``C'' word.
    Let me just say, Mr. Chairman, the Helsinki Commission has 
pushed for a greater recognition of the threat of organized 
crime and corruption in the OSCE and has supported efforts to 
develop an OSCE strategy to combat them.
    During the 1999 annual meeting of the OSCE Parliamentary 
Assembly in St. Petersburg, Russia, our delegation called for 
convening a meeting of the OSCE foreign ministers to develop 
strategies to combat these threats. I introduced a resolution 
there condemning cross-border trafficking in women and 
children. We had a very robust debate, and the delegates from 
all of the countries that make up the OSCE approved that 
resolution, which we again approved this year in Bucharest when 
we held another Parliamentary Assembly. Interestingly enough, 
this year's focus was on the very matter of today's topic, 
corruption, and all of its aspects and manifestations.
    I would ask that my full statement be made part of the 
record.
    Again, I want to thank you for this very timely hearing, 
and thank especially our witnesses for being here and for the 
great work they do to try to mitigate corruption.
    Chairman Gilman. Thank you, Mr. Smith.
    [The prepared statement of Mr. Smith is available in the 
appendix.]
    Chairman Gilman. Mr. Menendez.
    Mr. Menendez. I want to commend you also for holding the 
hearing, Mr. Chairman, and the question of corruption is a 
question of costs, enormous costs, I believe; the cost of doing 
business certainly, but also the cost of corruption's 
consequences for societies. The loss for businesses, for U.S. 
firms is considerable. The State Department in a recent report 
says that over the past 5 years, it has received more than 350 
allegations of bribery related to international contracts worth 
$165 billion. U.S. firms allege actual losses in this period of 
$25 billion in contracts due to illegal bribes by foreign 
competitors.
    The financial incentives can be irresistible for any 
individual firm. At any level, bribery hinders competition, 
distorts trade and harms consumers and taxpayers, but I believe 
the costs to society at large are even greater.
    Corruption is about the rule of law, responsible 
development, and citizens' faith in their government. A corrupt 
society is a dangerous society. Corruption facilitates crimes, 
destabilizes a society, and impedes all manner of economic, 
political and social development. It undermines the rule of law 
and democracy, and a lack of democracy is very costly indeed.
    For example, in Peru right now, the government is putting 
the country and the Peruvian people in jeopardy by risking 
future investment due to corruption. Corruption in the tax 
administration has made the government seek to make up for its 
losses by illegally and illegitimately going after the tax 
deposits of an American firm, an American firm that will 
clearly send a message to the community in the United States 
that it is not a country to invest in.
    Also in Peru, Vladimir Montesinos, the feared and corrupt 
head of the country's intelligence service, was caught bribing 
an opposition political candidate. The bribes, and there were 
certainly more than one, cost Peru democratic legitimacy. Maybe 
catching the perpetrator may help bring it back.
    Indeed, if you look at Transparency International's 
Corruption Perception Index, you would see that the countries 
at the bottom of the list are countries whose governments' 
actions or inactions in terms of stemming corruption, promoting 
democratic governance and investing in sustainable governance 
have proven costly for their society.
    In many cases, instability, a lack of democracy and even 
war in these countries has forced the international community 
to spend enormous amounts of money to help bring about peace 
and democracy. Yugoslavia, Indonesia, Nigeria, for instance, 
are all at the very bottom of the list.
    It may be a stretch to suggest that corruption contributes 
to poverty, intolerance and war, but I don't think so. I 
believe that even disasters, and ensuing disaster relief funds, 
would be lessened in terms of the cost if corruption were 
reduced.
    Witness Hurricane Mitch in Central America. Of course, 
corruption didn't cause the hurricane or determine which 
countries were hit, but the losses in the two countries most 
affected, Honduras and Nicaragua, probably would have been 
greatly reduced if corruption were not such a problem in those 
two nations, which find themselves at the bottom of 
Transparency International's list. Why? Corruption means that 
less development and infrastructure money actually makes it 
into building quality homes, bridges and roads. In other words, 
in my mind, corruption actually can kill.
    In conclusion, Mr. Chairman, I welcome the attention to 
efforts at corruption reduction, and I urge increased resources 
to combat corruption. I am a proud cosponsor of Mr. Gejdenson's 
Anticorruption and Good Governance Act. I applaud his efforts. 
I do wish the act authorized increased funding for the battle 
against corruption, for the battle for democracy, but it is a 
step in the right direction. I look forward to working with him 
and you to achieve those goals.
    Chairman Gilman. Mr. Faleomavaega.
    Mr. Faleomavaega. Mr. Chairman, I want to certainly commend 
and compliment your leadership and for calling this hearing 
this afternoon, and certainly offer my personal welcome to our 
distinguished guests here on the panel that will give us, I am 
sure, their words of wisdom in trying to combat this very 
issue. I would also like to commend the gentleman from 
Connecticut for his sponsorship and authorship of this 
important legislation.
    I certainly echo the sentiments that have been expressed 
earlier by my good friend from New Jersey, both gentlemen from 
New Jersey, and their insights into this very important issue. 
I don't think it has any limits in terms of what we talk about, 
corruption. We can talk about the drug cartels, we can talk 
about the syndicates, we can talk about all of this, we know it 
exists, and I think it is very, very important that as well our 
business community are not taken at a disadvantage when it is 
all right to bribe officials of some countries and our 
companies there can become disadvantaged as far as conducting 
fair competition as far as the business climate is concerned.
    So I think this legislation is very much appropriate, and I 
think we need to do more, and I sincerely hope that the 
interests in the Congress will not be in any way diminished in 
pursuing this, not only certainly providing for our own 
Nation's inadequacies and maybe failings as well in seeking to 
go after corruption, but certainly as a demonstration of the 
kind of example that we could lead or share our resources and 
our understanding with our sister nations throughout the world, 
hopefully that we can combat this very insidious and very 
difficult situation that many nations of the world are 
confronted with.
    I thank you, Mr. Chairman. I yield back the balance of my 
time.
    Chairman Gilman. Thank you, Mr. Faleomavaega.
    To our panelists, let me note we will be entering any of 
your written statements you may wish to make into the record at 
the hearing in full. Accordingly, I would ask each to please 
proceed for 5 to 7 minutes, and then we can have an appropriate 
dialogue.
    Our first panelist today is Mr. Fritz Heimann. Mr. Heimann 
was a founder of the Transparency International and is Chairman 
of Transparency International USA. Mr. Heimann has a long 
career of service in the General Electric Corporation, which 
has itself been a great leader in the struggle against 
corruption for all the right reasons. I think it is appropriate 
to recognize GE's support of your personal efforts and its 
leadership in this matter more generally.
    Please proceed, Mr. Heimann.

      STATEMENT OF FRITZ HEIMANN, CHAIRMAN, TRANSPARENCY 
                       INTERNATIONAL USA

    Mr. Heimann. Thank you, Mr. Chairman. I would like to 
compliment the Committee for calling this hearing. Your title, 
``The Fight Against Corruption: The Unfinished Agenda,'' is 
extremely appropriate.
    During the past few years, a good start has been made in 
addressing international corruption; however, much more needs 
to be done.
    TI was established in 1993. Our headquarters are in Berlin, 
Germany, and we have a network of national chapters now in over 
75 countries. TI's first objective, placing corruption high on 
the international agenda, has been largely accomplished. There 
is now widespread recognition of the damage done by corruption. 
This recognition is a big step forward from the time when 
corruption was treated as a taboo subject by the international 
community. The major challenge now is to prove that tangible 
progress can be made to reduce corruption. There is still much 
skepticism whether reform will work.
    The current prominence of the issue gives us a window of 
opportunity; however, that window will close unless we can show 
successful results in the next 3 to 5 years. This requires 
realistic priorities. We must be selective in focusing 
resources, programs in countries where success can be achieved 
in the next few years.
    I will concentrate on the OECD Convention because that is 
the most promising initiative so far and is closest to 
achieving tangible results. Demonstrating that the Convention 
will work will add momentum to the whole anticorruption effort. 
It is strategically important because if the major 
industrialized countries can show that they have cleaned up 
their act, that will significantly strengthen their leverage in 
trying to curb corruption elsewhere.
    The OECD Convention is important because the member 
countries are the home countries of most major international 
corporations. Thus it becomes the ideal tool for controlling 
the supply side of international corruption. Approximately 26 
of the 34 signatories have now ratified, including 9 of the 10 
largest exporters. This means that the necessary critical mass 
is aboard. The focus now shifts to making sure that the 
Convention is effectively implemented and enforced.
    A key element of the Convention and the reason why we can 
have confidence in it is that it provides a process of follow-
up monitoring. During the past year, the implementing laws 
passed by 21 countries have been reviewed. The most telling 
sign that the monitoring process is off to a good start is that 
both the U.K. and Japan were given flunking grades by the 
monitoring process. Not many international institutions have 
the courage to criticize their largest members.
    During the next 12 months, we need to make sure that 
deficiencies in implementing laws are corrected and that the 
eight remaining signatories ratify the Convention. Considerable 
additional work is needed to make sure that the good intentions 
of the Convention will be translated into practical results.
    I will focus on four issues which I think deserve the 
attention of this Committee; first, making phase 2 of the 
monitoring process work. Early next year the OECD is going to 
begin the second phase of its monitoring process, namely 
assessing the effectiveness of national enforcement programs. 
That will be the critical reality check to determine whether 
the Convention is working. OECD teams will be sent to six 
countries each year to conduct on-site reviews.
    TI has made two suggestions to OECD to make sure that the 
monitoring process works. First, we are convinced that much 
more adequate staff and budget support must be provided. At 
present only 3 out of the 1,800 employees of the OECD are 
working in this area. As we move to evaluating enforcement, 
this becomes a much more difficult task than the previous 
effort to examine the adequacy of implementing laws, and that 
will require much more staff support.
    The monitoring process must also be made more transparent. 
Public hearings should be held each time the OECD conducts a 
country visit. Civil society and private sector exports should 
be allowed to present their views and respond to questions from 
the monitoring team. Making the monitoring process more 
transparent remains quite controversial at the OECD. Many 
countries prefer to conduct reviews behind closed doors. For 
them, proposals for nongovernmental participation raise the 
specter of Seattle-type confrontations. TI believes that a more 
open process will improve public acceptance and reduce the risk 
of confrontation.
    The second step is to prohibit bribery of political party 
officials. The OECD Convention as approved in 1997 prohibits 
bribery of foreign public officials, but does not cover bribery 
of foreign political party officials. In TI's view, this leaves 
a dangerous loophole which will be increasingly exploited as 
the prohibition of bribery of public officials goes into 
effect. The U.S. has pressed for such coverage, but very few 
other OECD countries were prepared to tackle this controversial 
subject.
    TI believes that the recent scandals involving Chancellor 
Kohl and his party demonstrate that the time has now come to 
close this loophole. To that end, we are organizing a high-
level international group to develop recommendations for 
submission to OECD. The group will meet next month in Italy. 
This meeting will be chaired by John Brademas, a distinguished 
former Member of the House, and by Peter Eigen. A major effort 
will be required over several years' duration to convert this 
project into an effective move.
    The third recommendation is to strengthen OECD's focus on 
accounting, auditing and corporate controls. Last April, TI 
submitted to OECD a detailed survey of current practices and 
requirements in the financial area in 16 OECD countries, 
including the 10 largest exporters. The survey was conducted by 
a task force from the big five international accounting firms. 
The study disclosed very serious deficiencies in most of the 16 
countries.
    Prohibitions against foreign bribery cannot be effectively 
enforced unless there are adequate requirements for financial 
accountability and transparency. TI has recommended that the 
deficiencies identified in our report be dealt with during the 
OECD monitoring process. To make that happen needs another 
strong push by the U.S. Government.
    The fourth need is to publicize the existence of the 
Convention. Last fall TI published a survey called the 
Bribepayer's Index which looked at 19 leading emerging markets 
around the world. It showed that very few of the respondents, 
only about 1 in 20, had heard of the OECD Convention. What is 
most surprising is that respondents from major international 
companies were just as ignorant as those from local companies. 
TI has recommended that a major educational effort be launched 
to make clear to businessmen, both in OECD countries and in key 
foreign markets, that bribing foreign officials is now a crime.
    Chairman Gilman. May I interrupt the witness? Would you try 
to summarize? We have given you 7 minutes. We hope you can 
summarize.
    Mr. Heimann. I will be glad to stop here. There are a 
couple of other points that are covered in my testimony, but I 
will be happy to address that as part of any colloquy.
    Chairman Gilman. Thank you very much.
    [The prepared statement of Mr. Heimann is available in the 
appendix.]
    Chairman Gilman. Our next panelist is Mr. Kwasi Abeasi. Mr. 
Abeasi is Director-General of the Private Enterprise Foundation 
of Ghana, which is an umbrella body for business associations 
in Ghana. Mr. Abeasi has held a variety of private sector 
positions in the oil and industrial sectors. He has an MBA from 
Syracuse, and was also trained at Harvard. Mr. Abeasi is also 
Assistant Governor of the Rotary District 9100 in Africa.
    Mr. Abeasi.

STATEMENT OF KWASI ABEASI, DIRECTOR-GENERAL, PRIVATE ENTERPRISE 
  FOUNDATION, GHANA, ASSISTANT GOVERNOR, ROTARY DISTRICT 9100 
                            (AFRICA)

    Mr. Abeasi. Thank you, Mr. Chairman. I consider this indeed 
a privilege and an honor to make a presentation.
    I have noted you rightly termed it ``unfinished agenda.'' I 
hope in my short presentation I will be able to indicate what 
efforts we are making in my country to make sure this fight is 
successful.
    Let me say at the outset I have decided to speak on the 
subject not because I am the most appropriate person in Ghana 
or that I am an expert, but only because I have in the past few 
years been sufficiently involved in the fight against 
corruption in Ghana as the private sector's representative. And 
as the Director-General and also with Rotary, I have 
experienced quite a bit of the fight to be able to talk about 
it. I feel that from these two strategic positions, I have 
enough experience to be able to give you some impressions.
    I also hope that the impression that is given that the 
whole of Africa is one vast block of corruption and that 
nothing is being done would be corrected.
    Mr. Chairman, corruption is not new, nor is it confined to 
any particular part of the world. On the contrary, corruption 
is a global phenomenon, although its severity differs from 
country to country. For those of us in developing countries, 
its effect is very devastating. The cost of corruption and its 
effect on us is well-known, and it is so enormous that all 
efforts must be marshalled to fight this war. Needless to say, 
it is impossible to eliminate corruption, but with a concerted 
effort, we believe that we can minimize it.
    Previous efforts to combat corruption in Ghana, like 
several countries, have been the effects of military 
interventions. The justification for virtually every successful 
or attempted military intervention in the Ghanaian politics has 
included a tirade of criticism against the ousted regime for 
fostering corruption and being the very embodiment of 
corruption. This is usually followed by a promise to stamp out 
the evil and to introduce probity, accountability and 
transparency into the body politic. This, however, only proves 
to be not true.
    Previous national efforts to deal with the problem of 
corruption have therefore centered around commissions of 
inquiry, special tribunals, religious crusades, criminal 
prosecutions and media exposure. In short, they tackled the 
stem and branches of the problem and left the roots deeply 
entrenched in the well-nourished soil of bureaucratic 
incompetence and arrogance, pockets of influence amidst a sea 
of large-scale poverty.
    Corruption in Ghana has been a source of worry and a great 
concern. Indeed, evidence to support this can be found in the 
findings of the Global Risks Survey, TI's Perception Index, and 
indeed in our President's own mention in sessional addresses to 
Parliament and recently his address to the U.N. Millennium 
Summit.
    The perception that corruption is rife in Ghanaian society 
is further collaborated by empirical studies conducted in 1998 
by the Center for Democracy and Development, an independent 
entity with which I am connected. The good news, however, is 
that more people are now bold enough to talk and do something 
about reducing corruption in the Ghanaian society. The verbal 
onslaught on corruption in the Ghanaian society has been led by 
the President himself.
    In October 1998, we established the Commission on Human 
Rights and Administrative Justice in conjunction with a number 
of key stakeholders, including my organization, the Private 
Enterprise Foundation. We staged a National Integrity Workshop 
to create awareness of the social and economic costs of 
corruption and to foster a positive and nonpartisan approach 
toward combatting corruption. We also established the Civil 
Fraud Office, which is also a constitutionally created 
institution, in 1997.
    In our strategies toward fighting corruption, we have 
indicated that government may lead by example and commit 
adequate resources to the fight. While this is acknowledged by 
government, the political will to go the full distance in 
punishing high government officials who are found guilty of 
corrupt practices, however, needs to be demonstrated.
    CHRAJ is one of the key institutions that we are using to 
fight corruption. The Civil Fraud Office is also another 
constitutionally created institution which came into effect in 
1997 amidst controversy that it was an organ which government 
intended to use against opposition members, and yet in its 
short existence some effective work has been done.
    The experiences of countries that have attained relatively 
impressive successes in their struggle against corruption 
indicate that a fair and living wage policy is crucial to the 
successful implementation of any anticorruption program. 
Attention has therefore been drawn to the low wages prevailing 
in the country, and the government has to provide the Ghanaian 
work force with a living wage that will serve to insulate some 
of the most vulnerable groups.
    We have also created a new role for the private sector. 
Indeed, the OECD has just published the final report of the 
seminar we had in Washington here on fighting corruption in 
developing countries and emerging economies, the role of the 
private sector. Because we were part of this seminar, we have 
already started implementing some of the findings and 
recommendations.
    Recognizing the fact that for corruption to occur there are 
always two parties, the corruptor, or the influencing source, 
and the corrupted, the private sector acknowledged the fact 
that very often the corrupting influence is from the private 
sector. We therefore agreed to get involved in this fight for 
the first time in my country in 1998.
    It should also be borne in mind that both the local private 
sector and the foreign private sector sometimes are guilty of 
acts of corruption. To this end even though we know that the 
foreign private sector is usually fairly governed by business 
practices and regulations, sometimes there are a few of these 
ones who condone this.
    We have therefore decided in taking steps, new steps, to 
combat corruption in my country and done three things. First of 
all, we have looked at the areas of contracts and have set up 
the SFO to look into all contracts and ensure that the possible 
effects of corruption are minimized.
    Secondly, we have also started drafting a code of ethics 
and conduct along the lines of the Commonwealth Association for 
Corporate Governance's Guidelines and Principles for our 
business community to augment the Company's Code, which is also 
being reviewed, and we will need assistance in this direction. 
We want to fashion it along the directions of the King 
Commission on Corporate Governance of South Africa.
    We have also, with the help of the World Bank, established 
the Ghana Anticorruption Coalition, on which I represent the 
private sector. An action plan has been drawn up which would be 
launched this coming Friday.
    Finally, we also have started the Ghana Integrity 
Initiative as a local chapter of TI in Ghana.
    Civil organizations, like Rotary Clubs, are contributing 
immensely by way of changing the attitudes of the business 
professional men. In the 1989 Council of Legislation for Rotary 
International, it was highlighted that business and 
professional people must concentrate on the ethical 
requirements of the vocation, as well as the laws of their land 
and the moral standards of their community. Surely with these 
noble objectives and declarations, the more Rotarians we have 
in the country, the less corruption we will have in that 
particular country. We have decided, therefore, to increase the 
number of Rotarians in our country.
    In conclusion, Mr. Chairman, let me say that we can 
conclude or finish this agenda, or at least shorten the agenda, 
if all of us, governments, development partners, civil society 
and the private sector, will show a real commitment to this new 
coalition of forces against corruption and augment each other's 
efforts. We should try all we can to make resources available 
to all the stakeholders or members of this coalition, 
especially civil society and the private sector.
    By the private sector, Mr. Chairman, I do not mean the so-
called nongovernmental organizations, but rather private sector 
associations and institutions that can really be held 
accountable for the use of these scarce resources. More mileage 
will be obtained by tunneling these resources through credible 
private sector associations which can keep the pressure on 
governments to do more than just pay lip service. Most donor 
groups, especially the Bretton Woods institutions, have always 
cited their mandates as not allowing them to offer direct 
assistance by way of resources to the private sector. I 
believe, however, that these mandates are man-made and can 
therefore be modified or changed.
    Finally, let me also repeat the appeal of my President, 
Flight Lieutenant J.J. Rawlings, to the U.N. Millennium Summit 
that the fight against corruption will be greatly enhanced if 
proceeds from these corrupt activities, especially by people in 
leadership positions, which find their way into foreign bank 
accounts in your countries, when detected are returned to the 
countries concerned from whom the U.S. took them in the first 
place.
    I thank you very much for your attention.
    Chairman Gilman. Thank you, Mr. Abeasi, who is also 
incidentally the private sector representative on Ghana's 
anticorruption commission. We thank you, too, for your work on 
the Washington Conference Report on Corruption.
    [The prepared statement of Mr. Abeasi is available in the 
appendix.]
    Chairman Gilman. Our next witness is Roberto de Michele. 
Mr. de Michele heads the Transparency Unit of the Argentine 
Ministry of Justice and Human Rights. An attorney, he is also a 
teacher, an author and a translator. He is best known as a 
corruption fighter in his own country, and is also consulted by 
authorities around the world. He has a special perspective as a 
citizen of a developed Latin American country to bring to us 
today.
    Please proceed, Mr. de Michele.

STATEMENT OF ROBERTO DE MICHELE, MINISTRY OF JUSTICE AND HUMAN 
                       RIGHTS, ARGENTINA

    Mr. de Michele. Thank you, Mr. Chairman, and thank you for 
the invitation to this hearing.
    Briefly I would like to first mention the current situation 
in Argentina. Argentina is going through a process to increase 
transparency and accountability in government, a process which 
started showing some signs a few years ago when by decree the 
first code of ethics in government was passed and an Office of 
Government Ethics was created. By the end of last year, this 
decree was transformed into a law, national legislation, which 
includes rules for ethics in government for the three branches 
of government, and also creating special obligations in terms 
of conflicts of interest for public officials.
    At the same time, the new administration which took office 
in 1999 created by law the Anticorruption Office within the 
sphere of the Ministry of Justice. The mandate of the 
Anticorruption Office is to implement the rules and provisions 
of the Inter-American Convention Against Corruption. In fact, 
this office has two branches, two areas, one dedicated to 
investigation and the other one dedicated to planning, 
designing, proposing and implementing policies to increase 
transparency, accountability, and reduce incentives for 
corruption.
    Some of the particular tasks that this office carries out 
is investigation of past and current situations in which public 
officials and particularly the executive branch might be 
involved dealing with cases stipulated under the Inter-American 
Convention as corruption.
    The other area among the assignments the Direction for 
Transparency Policies deals, with issuing opinions on conflicts 
of interest of current officials in government. In fact, it has 
issued so far more than 50 opinions, including Ministers, 
Secretaries of State and officers of lower rank. The opinions 
instruct public officials on such actions as selling of assets 
and withdrawal from private activities that might conflict with 
their public duties. It is also in charge of administering the 
system of financial disclosure forms in which citizens can 
track the possible evolution of assets of public officials and 
therefore increase the social control that is needed as in any 
sound policy to promote transparency.
    Argentina is not only active within the sphere of the 
Inter-American Convention, it also takes part in other forums, 
such as the Financial Action Task Force dedicated to issues of 
money laundering. It is active also within the United Nations 
Center for Research on Criminal Issues and Justice, and is 
working there on proposing an elaboration of the general 
convention against corruption within the framework of the U.N.
    Only 10 days ago, Congress in Argentina approved the OECD 
Convention, which means that in a short time it will become 
law. Our office is in charge now of analyzing the reforms to 
our substantial legislation that the new convention will 
require. The possible changes will be focused basically on 
issues that have to do with money laundering and the possible 
complementation or conflicts with the existing legislation on 
money laundering.
    Also it will have to deal with issues such as the ones 
mentioned before by Mr. Heimann, referred to as accounting 
procedures and rules in order to implement more standardized 
and transparent ways in which corporations take notice of their 
economic operations.
    There will be also some recommendations in terms of mutual 
assistance between judiciaries of different countries in 
extradition. There is also going to be--part of the work will 
focus on the idea of seizure of assets of people who are 
allegedly involved in cases of corruption.
    There has been a lot said and written on the effect of 
corruption for the economy and the market, but let me perhaps 
introduce a thought that not everyone shares. Corruption not 
only has to be viewed as a problem, but perhaps as a 
consequence of the problem. The basic problem is the lack of 
rule of law and weak public institutions. You are aware, Mr. 
Chairman, that unfortunately not all the world shares the 
benefits of democracy and rights for the citizens and effective 
government. If the question is what can be done in terms of 
making more progress in this arena, I would say that a sound 
strategy should include a long-term vision, which is promoting 
the expansion of the rule of law and democracy around the world 
as a more substantial basis on which to build an anticorruption 
strategy.
    In the short term, other actions can be implemented. We 
believe that the monitoring process provided by the OECD 
Convention is an adequate procedure by which different 
countries can into a more elaborate and useful context in which 
the rules of the game are fair for everyone, and therefore 
offer adequate guarantees that nobody will be playing by their 
own standards or unaccepted rules.
    Referring to this kind of procedure or process, you are 
probably aware that the OAS, the Organization of American 
States, within the Working Group on Probity and Public Ethics, 
will try in the short run to adopt measures that are similar to 
the ones provided by the OECD Convention.
    Going back to the question of what can be done on this 
area, the exchange of expertise will probably help countries 
involved in concentrating on the same focus or projects. In the 
particular case of Argentina, we have a formal agreement with 
the U.S. Government, particularly with the Office of Inspector 
General of the State Department and the Office of Government 
Ethics, that has proven useful and a successful way in which we 
can exchange experiences and collaborate in fields of mutual 
interest.
    Again, Mr. Chairman, thank you for the time.
    Chairman Gilman. Thank you, Mr. de Michele.
    Our final panelist today is Robert Klitgaard, the Dean of 
the RAND Graduate School and the Ford Distinguished Professor 
of International Development and Security. He served as an 
advisor to many governments on economic strategy and 
institutional reform and has written seven books on a wide 
range of public policy issues, including Corrupt Cities, a 
Practical Guide to Cure and Prevention.
    Welcome, Dean Klitgaard. You may proceed.

   STATEMENT OF ROBERT KLITGAARD, DEAN, RAND GRADUATE SCHOOL

    Mr. Klitgaard. Thank you very much. It is a pleasure to be 
here this afternoon with you.
    One part of the next agenda in fighting corruption is how 
to invite in even more the private sector into that fight, and 
this afternoon I would like to share one idea for your 
consideration.
    The idea builds on a paradox that in all the countries that 
are afflicted with systematic corruption, people in everyday 
life in the private sector know how the systems work. After 
all, they are the ones that are paying the bribes and being 
extorted, so that common citizens know how corruption impedes 
the social services they do and do not receive.
    Lawyers understand how corruption afflicts the legal system 
and its implementation. Business people understand very well 
how corrupt systems of procurement and contracting work. 
Accountants know very well how tricks are played in corporate 
governance which become corrupt, evasion of taxation.
    There is a paradox here, because on the one hand these 
people know, but they cannot say. In many of these countries, 
speaking up about the kinds of systems that exist to corrupt 
their country is dangerous. It is a form of virtual suicide to 
speak up. They know, but they cannot say. So the challenge, or 
a challenge, in the next agenda, in the next step in this 
process, will be to figure out how can we learn what they know 
without putting them in a very sorry predicament?
    So here is the idea I have for your consideration. Imagine 
that with the lead of the U.S. Government and our private 
sector, we picked out three areas where we know corruption 
afflicts many of our friendly countries, let's say one in the 
economic area such as procurement, one in the social area such 
as pharmaceuticals, one in the justice area such as the legal 
system in the courts, and we invite another set of countries to 
participate with us in a diagnostic effort that builds on the 
private sector's knowledge of how these corrupt systems work.
    So what I have in mind is going to each country, taking out 
15 or 20 individuals who are involved in the private sector 
side in each of these three areas, and engaging in confidential 
individual interviews with them that lead them through the 
system to describe not individual people who are giving or 
receiving bribes, but how the informal, possibly corrupt, 
system works in practice. How are side payments made? How 
extensive is the problem? How do the perpetrators of corruption 
keep their actions and the results of those actions hidden from 
public scrutiny? How does the corrupt system work?
    With this diagnostic effort, improvements would then be 
sought, again in cooperation with the private sector. On the 
one hand, how can the formal systems be strengthened; on the 
other hand, how can these corrupt informal systems be subverted 
through actions ranging from public, private and nonprofit?
    Let us suppose then with this effort reforms would follow, 
helped by the American Government, helped by American business, 
and then after some time, using the same methodology, we would 
actually try to evaluate the success, going back once again to 
business people, lawyers and accountants, and asking how are we 
doing after a year, 2 years, 3 years.
    Now, I would like to contrast this idea with the current 
state of play in international aid for anticorruption efforts, 
and I want you to imagine you are the President of country X. 
Country X is a country that is receiving World Bank help or 
USAID help, and you have received a loan or grant on the 
condition that you clean up corruption in your country. Okay. 
This puts you in a tough spot, because when you announce an 
anticorruption effort, you are admitting that your government 
is corrupt, and the opposition party says, of course, we knew 
this all along. That is what we have been saying. And your 
ministers and your civil servants are embarrassed at the 
bashing that they take at your very hands.
    So it puts you in a tough position, which is one reason why 
many Presidents do not enjoy being given conditional loans on 
the contingency of announcing that their governments are 
corrupt and they are going to heed the tune of the World Bank 
or the U.S. Government to clean it up.
    In contrast, take the idea I mentioned to you. Imagine 
again you are the President. You say, I am delighted to be part 
of this international effort to study the way corrupt systems 
afflict our world. I am so happy that the private sector in our 
country and the citizens groups are taking part in this 
diagnostic effort, because, after all, this is a problem that 
affects all of us, and all of us must be part of the solution. 
The international nature of the effort, the fact that the 
private sector and the opposition parties would also be 
involved in this effort gives you insulation as a President and 
a chance to move forward with a more positive political face on 
this issue.
    Now, how might this work in practice? One final advantage 
of this idea is it is fairly cheap. Imagine 150 to 200 
interviews per country, some convening and collecting of 
results both internally and internationally, the financing of 
reforms, much of which should be done by countries themselves, 
and then its follow-up surveys, again abetted by the private 
sector. It is an idea that will not cost us as much as many 
other ideas.
    So practically, Mr. Chairman, how could this idea be 
pursued? I suggest that you, this Committee, Members, develop 
this idea and dialogue with USAID, with Transparency 
International, with the Commerce Department, and then with 
friendly nations who would be interested in participating. With 
this collaboration, using technical expertise, design the 
diagnostic, the interview instruments that would be used and 
the procedures for gathering the data, organize the collection 
of the data in each country, and then enable a system 
diagnostic to be drawn of each of those three areas that we 
would choose as the focal points. Share the results of the 
diagnostic study with the governments of each of these 
countries and work with them to develop transparent, openly 
discussed remedies for the informal systems that we see that 
are corrupt. Then implement the recommendations, follow it up a 
year later, and use the very processes developed, the 
participation of the private sector in this effort, to develop 
further ideas for combatting corruption.
    To conclude then, inviting the private sector means 
learning what business people, accountants, lawyers and common 
citizens know about the way corrupt systems work. The 
particular version of the idea I have outlined here this 
afternoon, in this particular version the United States would 
take the lead in organizing an international collaborative 
effort to analyze how corrupt systems work and how they might 
be cleaned up. Notice that the idea goes beyond international 
conventions, beyond codes of ethics, beyond foreign aid that is 
aimed at civil service reform or more of the same in 
government. Instead, it looks at inviting the private sector 
into the fight against corruption.
    Thank you.
    Chairman Gilman. Thank you, Dean Klitgaard, for your very 
interesting proposition.
    [The prepared statement of Mr. Klitgaard is available in 
the appendix.]
    Chairman Gilman. Let me ask some questions.
    Mr. Heimann, are there any pressures that our government, 
as opposed to the World Bank or other international 
institutions, can or should put on foreign companies to adopt 
appropriate books and records and practices so that the supply 
of bribes can be reduced?
    Mr. Heimann. Thank you, Mr. Chairman. I will be very glad 
to answer that question.
    TI proposed to the World Bank several years ago that it 
should encourage corporations to adopt antibribery compliance 
policies. At the time the World Bank took the position that 
only American companies had these policies, and it would be 
inappropriate to apply this requirement because it would shrink 
the pool of perspective bidders.
    We think at this point we are at a stage where over 20 
countries have ratified the OECD Convention. I think the time 
has come to impose such a requirement not just on the part of 
the World Bank, but on other international financial 
institutions, and we hope very much your Committee would 
encourage that, because I think I share Mr. Klitgaard's view, 
you need the cooperation of the private sector. Criminal law 
sanctions work only if the majority of companies comply 
voluntarily. Then the law can bring the other 10 percent in 
line. But a program of encouraging voluntary compliance is 
essential to get the 90 percent aboard.
    Chairman Gilman. What should the United States be doing 
besides the International Bank?
    Mr. Heimann. Well, what AID and other American agencies 
already require. The important thing is to get the rest of the 
world on board. But the U.S., through its role in the World 
Bank, in the Inter-America Development Bank and other similar 
institutions, can promote this. Similarly, OECD has a group 
that works on bilateral aid programs. So I think there are a 
number of vehicles available to the U.S. Government to push 
this. I think if your Committee encourages it, the government, 
the administration, would do this.
    Chairman Gilman. Mr. Abeasi and Mr. de Michele, how have 
developing countries responded to the adoption of the OECD 
Convention? Have they welcomed the move to criminalize bribery, 
or do they resent it as an intrusion in their internal affairs?
    Mr. Abeasi. I think, for my part, it has been quite 
acceptable to us, because as you indicated, it is a major cause 
of benefit for Ghana, and therefore it is being welcomed, 
especially by those that are getting into the democratic 
dispensation.
    I just want to take the opportunity to say that the steps 
being advocated by Mr. Klitgaard has already been taken by a 
few countries, including my country, for instance. We need to 
create a demonstration effect that people that have done that 
are going to get ahead. Botswana, for instance, is well-known 
in the league for less corrupt nations, and I think we need to 
create a few more of these.
    I want to suggest that we are at a place where, with a 
little effort, we can have another example which will be 
showing that demonstration effect. But the OECD Convention 
appears to be in the right direction.
    Chairman Gilman. Mr. de Michele?
    Mr. de Michele. Mr. Chairman, in my knowledge, there has 
been no negative reaction to the adoption of the OECD 
Convention. In fact, the adoption of the Inter-American 
Convention, which took place 3 years in advance, shows that 
basically these kind of conventions and rules are adoptable by 
countries.
    Now, the question still remains, how real will these 
provisions become in each of these countries, and how far we 
can move in terms of international cooperation.
    Chairman Gilman. Thank you.
    Dean Klitgaard, can your proposition be pilot-tested? You 
have heard Dr. Abeasi say they already tested it.
    Mr. Klitgaard. Yes, sir. It has been done in a few 
countries, for example, with judges and prosecutors. We are 
asking lawyers how the system actually works. Members of the 
bar association enabled a description to be made of how that 
system worked, and then you could close the loopholes and the 
risks. In other countries it has been done in areas like road 
building and pharmaceutical supply, where you can analyze the 
steps along the process of procurement and contracting to 
notice where the systematic vulnerabilities are to corruption.
    What hasn't been done yet as a pilot basis is this kind of 
international comparison with the systematic effort to build in 
the private sector in the civil society as part of an 
international effort. I think that is something that would 
really add to the effectiveness of the effort.
    Chairman Gilman. Dean Klitgaard, couldn't your proposal be 
tested out at the Washington Conference on Corruption and see 
if they would voluntarily agree to undertake this?
    Mr. Klitgaard. Sure. We could try it out. You mean this 
week?
    Chairman Gilman. Yes.
    Mr. Klitgaard. We could try it out.
    Chairman Gilman. Try it out there and let us know how it 
works out.
    Mr. Gejdenson.
    Mr. Gejdenson. Thank you, Mr. Chairman.
    You know, I can't remember which Ottoman emperor, but it 
seemed to me one of the Ottoman emperors said he was giving his 
top staff access to his harems and treasuries. Others objected 
to this, asking why he paid his people so well, and he said he 
didn't want to lose his empire for a handful of rubies.
    It seems to me one of the issues we have to take a look at 
and I didn't hear discussed here is frankly, in some countries, 
compensation is at such a level that you have to get a little 
extra on the side. If you are asking somebody to be a customs 
official, and you are paying him an official wage that by no 
stretch of any imagination, even with his spouse or her spouse 
working, even with a second job, is enough to survive on, then 
the government is saying, you have got to steal.
    Is there any review of what happens to critical employees 
at choke points where you can cut off corruption by training 
their salaries? Obviously many of these governments are in 
trouble, but unless, it seems to me, that the people who work 
for you are able to survive on the salary you pay them, you 
know they are going to cheat.
    Mr. Heimann. You have put your finger on one of the most 
sensitive and most difficult areas to deal with. Like most 
corruption issues, you have to develop local solutions to deal 
with it.
    In many, many countries, the civil service is too large, 
and, as you say, underpaid. However, the effort to go from that 
to a small number of people who are competent and well 
compensated is a very, very difficult step. It has got to be 
addressed.
    Mr. Gejdenson. It is the critical step. As long as I am 
making one-tenth of what it takes to survive, I am going to 
find a way for my children to eat.
    Mr. Heimann. From a TI standpoint, our first priority is to 
deal with grand corruption, big payoffs to top officials. Until 
you have dealt with that issue, until you have got the top of 
the government interested in reform, you can't deal with low 
pay in the rest of bureaucracy and facilitate it.
    Mr. Gejdenson. I am not sure I agree with that premise.
    Mr. Heimann. It has to be addressed.
    Mr. Gejdenson. I also want to thank you. We used a lot of 
your agency's work in drafting our legislation.
    Mr. Heimann. Yes. We are very much aboard your effort, and 
we want to continue working with you as it proceeds.
    Mr. Gejdenson. Yes?
    Mr. Klitgaard. I would like to take a crack at that 
question also. In 1989, I wrote a paper in a journal called 
World Development called Incentive Myopia. It pointed out that 
the free market reforms around the world were praising the 
value of incentives for farmers and fishermen and 
industrialists, and getting the prices right was the mantra, 
but we were not getting the prices right in the public sector, 
where in many African countries the median wage of a public 
servant could not feed a family of four, that we were inviting 
corruption in the same way.
    It is one thing to note the problem; it is another thing to 
create a solution. The solution I proposed was to forget about 
the solution through grand civil service reform and raising the 
average level of pay of all workers in government. That is 
financially impractical. Anyway, big civil service reforms 
don't have a good track record. Instead, pick some key areas 
where performance is measurable and try some experiments to see 
if they work. For example, in public works such as road 
building and ports, anything to do with power supply, you have 
pretty clear measures that you can provide, reward the 
laborers. This has been done in Ghana, in fact, back in the 
days 15 years ago. They were very successful to pay people with 
food-for-work money, additional bonuses for work successfully 
done with results that followed.
    Customs and tax bureaus in 1985 in Bolivia, they created a 
scheme where if the public Customs officials hit a 60 percent 
increase target that they themselves had specified, 5 percent 
of the additional 60 percent would go to them as payoff. In 
effect, they doubled Customs revenue in 1 year in Bolivia in 
1985.
    So you have to begin with schemes that have a measurable 
outcome to show it works, and then try to spread to the more 
difficult areas of government where it is very hard to measure. 
This is where it is also very entrenched with corruption, such 
as the courts and police. But I believe with an experimental 
approach as opposed to a civil service reform approach that 
this kind of problem can be addressed forthwith.
    Mr. Abeasi. Mr. Gejdenson, if I may add to that, as he 
said, we are attempting a Civil Service Performance Improvement 
Program. The basis is we want to try to reduce the size of the 
civil service and shift the excess toward alternate employment. 
The problem is how do you generate the alternate employment?
    Most people would want to get out of civil service that 
does not pay properly so they can get into the private sector. 
So the innovation is to develop jobs that people can do 
themselves and empower them by giving them new skills. This is 
the kind of operation that reform is trying to achieve, but it 
is not easy. Again, you need to be able to do a study that 
tells you the critical number of people you need in this 
service. This is the step we are on.
    Mr. de Michele. My office has just finished a diagnostic of 
the Argentine public administration that has been made public 
yesterday, specifically in procurement and human resources. I 
believe it is one of the first diagnostics that was produced 
via interviews and surveys on public officials themselves, 
high-ranking, mid- and low-ranking. The study shows, one of the 
findings, that even when you don't have the problem of low 
salaries, you still do have the problem of incentives for 
corruption. That is one of the findings. The other finding is 
that you have to be very careful to put a lot of things under 
the same word. Corruption is too large a word. You have to 
divide, analyze and----
    Mr. Gejdenson. Explain that. Explain what you mean by not 
having the same title for all of it. Give me two different 
categories from your perspective.
    Mr. de Michele. You can have similar situations in two 
agencies and a different outcome. It all depends on the process 
that the agency runs. Customs, running Customs is not the same 
as distributing syringes, not the same as contracting bridges. 
Therefore, you can have some problems of low wages in those 
three agencies, and in some of them you cannot have corruption. 
This requires--and I think it has been said before--this 
requires to develop tools that will allow for specific 
diagnostics.
    As far as I know, Mr. Klitgaard is perhaps the expert at 
the table, that we have not been very successful developing 
very specific tools. We are at the beginning of getting good 
instruments for this. So everything that goes in that direction 
is positive.
    Mr. Gejdenson. Could I have the Chairman's indulgence for 
one more question?
    Mr. Heimann, we have been very sanctimonious here in the 
United States, kind of sitting back here and growling about our 
European compadres continuing to bribe at will.
    What is your sense? One, are we missing some of our own ill 
deeds here? Occasionally American companies do get caught 
violating our own laws. Are we doing a good job enforcing 
Americans laws? And are the Europeans genuinely ready to not 
have the company deduct the bribe paid to the foreign official? 
Is Europe really engaging us on this, are they ready to go 
forward, do they see this as a serious challenge to democracy 
and society, or are they saying Americans want us to deal with 
it, we will make a little noise, but it is still not high on 
our radar?
    Mr. Heimann. We are making progress. We have got a long way 
to go. Three or 4 years ago, TI could not get German companies 
to pay any attention to its agenda, and it took really the 
election where the Social Democrats took over to change the 
climate. Now German companies are actively participating in 
TI's work. We are making some progress in the U.K. France, the 
progress is kind of slow. So you have to look at it country by 
country.
    I think one of the important changes in the last few years, 
and I think TI has played a role in this, is to make this an 
international issue and not just a U.S. issue. As long as we 
had the Foreign Corrupt Practices Acts and we said, well, you 
got to do what we do because we are clean and you are dirty, 
that was not productive. Over the last several years, I think 
it is being regarded as an international issue, and you are 
getting increasing support around the world. While that is 
progress, there is a lot more to do. But keeping it 
internationalized and being tactful how we push this from the 
U.S. standpoint is one of the key ingredients, and I think the 
administration deserves credit in having done this very, very 
well.
    Mr. Gejdenson. Thank you.
    Chairman Gilman. Dr. Cooksey.
    Mr. Cooksey. Mr. Gejdenson, don't leave. I am going to 
answer your question.
    Mr. Gejdenson. Go ahead. I am listening.
    Mr. Cooksey. Mr. Gejdenson is a good friend of mine. We 
have fun throwing barbs occasionally.
    I want to go on a little bit different line of questioning. 
I see some very young, idealistic people, hopefully students, 
in the back, and I want to bring up a rather disturbing dirty 
subject. I want to talk about the corruption in this country. I 
will give you some quick examples. The question I would like 
each of you to answer is do we keep our level of corruption 
down to the level that we should? If so, why? If so, do we do 
it because we prosecute people occasionally, or do we still let 
people get by? I am going to give you examples.
    The first example is a report from the World Bank. It is 
actually from the William Davidson Institute that I am sure you 
are familiar with. But it shows that the U.K., Germany, Japan, 
France and Russia, all give less kickbacks, bribery, for 
foreign investment than the United States does. Austria is 
worse than us, Belgium is worse than us, and Greece is off the 
chart almost. That is the first example. That is an 
international example.
    Local domestic examples: An investigator with the premier 
law enforcement agency in this country told me 2 years ago that 
in a previous administration in this city, the District of 
Columbia, there was a bribery kickback system going on in which 
the municipality was sending city vehicles out, trucks, 
backhoes, bulldozers, to residential and commercial 
construction jobs in this city where we are today, and the 
billing was done to another third-party entity. This 
investigating agency put the whole case together, wrapped it 
up, and there was never an indictment, never a prosecution.
    I am going to tell you about my State of Louisiana. We have 
a Governor who has been Governor for four terms, was recently 
convicted on 17 counts along with his son and other people for 
extortion or selling riverboat licenses. The Commissioner of 
Elections is going to trial in the next 90 days for a similar 
bribery kickback scheme.
    There is in my town. I live in north Louisiana. I don't 
live in New Orleans, I live in Monroe. We have a former city 
official. So you see, Mr. Abeasi, we have this in this country, 
too.
    My question is--and I won't tell you what party they were 
in----
    Mr. Gejdenson. Tell us what State they are from, if the 
gentleman would yield?
    Mr. Cooksey. They are from my State.
    Mr. Gejdenson. Thank you.
    Mr. Cooksey. But they were all in your party. Okay.
    How can we judge these other countries? And I agree, it 
goes on there. I used to work in Kenya. I used to go over there 
with truckloads of medical supplies when I was going over to do 
eye surgery. I was adamant about following the rules, and I 
went through all this, and one of my surgeons that went with me 
would get his trucks through for $20. Finally I gave up. For 
$20 I would get mine through in an hour. So, you know, it is 
easier to do it that way.
    My question to you is do you think we are really clean in 
this country? If not, why do we prosecute some people, and why 
do we not prosecute others, and what can we do to improve our 
situation in this country?
    Mr. Klitgaard. Are you a medical doctor?
    Mr. Cooksey. Yes, I am an eye surgeon. That is where I used 
to make an honest living, before I got this day job.
    Mr. Klitgaard. Is there a lot of disease in the United 
States?
    Mr. Cooksey. Yes. There is more in Africa, where I used to 
work.
    Mr. Klitgaard. Should we therefore not get into the 
business of curing disease in Africa, because there is disease 
in the United States?
    Mr. Cooksey. We do, but there seems to be a neglectful 
attitude in this country.
    Mr. Klitgaard. All right, but that is the same principle. 
The principle would be something like this. There is corruption 
everywhere in the world, just as there is sickness everywhere 
in the world, and we start from that point of view. And then we 
say, but the distribution of illness, different kinds of 
illnesses, are differently intense in different parts of the 
world. We have more heart disease than Africans do, we have 
more colon cancer than Africans do, let's say. They have more 
problems of hunger, malaria, diarrheal diseases and so forth.
    Mr. Cooksey. Infectious diseases.
    Mr. Klitgaard. So we don't say, you are sick, we are 
healthy. We say, do we know anything that can help you fight 
your diarrheal diseases, and the answer is yes, we do, and 
therefore we go and try to help.
    The same thing goes with corruption. I am often asked by 
foreign journalists, are you saying, gringo, that you don't 
have corruption in your country? And I say, first of all, no. 
We have been historically the number one exporter of corruption 
historically. I don't think we are anymore, but I think we 
historically have been.
    Mr. Cooksey. We are still high.
    Mr. Klitgaard. And we lead the league in insider trading, 
or we are close. We are doing very well in organized crime. At 
least historically we have done pretty well in that area. Being 
from Los Angeles, I can talk with pride about our police 
corruption being right there at world standards. I am joking. 
And, finally, I might say in this august body that in terms of 
campaign financing, there are some who believe that the system 
of campaign financing that we enjoy in this country, if not 
corrupt, legalizes influences and practices that in other 
countries would be thought to be inappropriate.
    So we come from that point of view, yet nonetheless we can 
say to them, do you think you are being held back by a judicial 
system that is systematically corrupt? Ours is not, not 
systematically. Do you think you are being hurt by banking and 
credit systems that are undermined by favoritism, theft and 
patronage? Ours are not systematically corrupt. Do you think 
there is any way we can help each other to do better for mutual 
benefit here? The answer is yes.
    So I think the medical analogy is a very good one to help 
us not be proud, not be self-righteous, but to look instead--
instead of saying, is there more heart disease in Argentina or 
in the United States, say, I don't know, but let's get to work 
on this patient.
    Mr. Cooksey. A good response and a good answer.
    Mr. Heimann?
    Mr. Heimann. In my experience working in Transparency 
International with people from many, many other countries, the 
right way to proceed is very much the way Bob Klitgaard had it. 
We have to admit we do not have a perfect system, but in most 
of the areas we are looking at, we have tried and we have been 
successful in many, many areas, and we have to learn things 
from other countries, but other countries are willing to learn 
from us. We have a much more transparent financial system. We 
have an SEC. Most countries don't have a SEC. We have an Office 
of Government Ethics that is being rapidly followed as an 
example by many other countries. The Chinese sent people here 
to learn about the U.S. Office of Government Ethics.
    So, nobody is clean. The reason we can work with each other 
is because we all have to admit none of us are clean. TI 
conducted a Bribepayer's Index last year. We looked at not just 
corrupt officials, but who does the bribe-paying. The U.S. came 
out in the middle of the pack. We were 9th out of 19. This came 
up to us as a real shock. We thought with the Foreign Corrupt 
Practices Act 20 years in existence we would be way ahead of 
the others. We were not. But that in turn----
    Mr. Cooksey. Could you continue to answer the question?
    Chairman Gilman. Without objection.
    Mr. Heimann. I am sorry?
    Mr. Cooksey. Go ahead.
    Mr. Heimann. We are----
    Mr. Cooksey. We are over my time limit, but I appreciate 
your comments.
    Mr. Heimann. So campaign finance is obviously a major area 
where we have got to learn. But that is one area where I don't 
think people can learn too much from us because of the first 
amendment problem. I met with John Brademas the other day. The 
1974 Campaign Finance Reform Act I think was a good move, but 
the Supreme Court gutted it, and other countries don't have the 
first amendment problem.
    Mr. Gejdenson. If the gentleman would yield, I want to say 
the Supreme Court has been wrong on other occasions, including 
separate but equal and a few other decisions through the years, 
so I think that a future Supreme Court will recognize that you 
can limit dollars without limiting speech, and if free speech 
and dollars are equal, then obviously poor people don't have an 
equal voice in this democracy. So I think it is just a mistake 
the Supreme Court made. I respect the Supreme Court, but I 
assume that a future Supreme Court will recognize that you can 
distinguish between the pile of money you have and the issue of 
free speech.
    Thank you, Dr. Cooksey.
    Mr. Cooksey. Absolutely.
    Mr. Abeasi, would you comment?
    Mr. Abeasi. I would want to say it is not new to us. I am 
not surprised. We know that corruption occurs here. Indeed, 
when I was coming here for the last seminar, I stopped through 
New York, and the immigration officer asked me, where are you 
off to this time? I said, to Washington. He said, what for? I 
said, I am going for the corruption conference. He said, that 
is a good place to go, you know.
    So we know that it happens here, but the important thing is 
that if you came with a holier-than-thou attitude, then it 
would be difficult to get us to take you serious. But we know 
that the damage that it causes in the United States is such 
that you might not even notice it, whereas if you took it to 
the developing country level, the damage is so devastating that 
we need to do something about it.
    Mr. Cooksey. It is. It is very deep, and it is broad.
    Mr. de Michele, would you like to comment?
    Mr. de Michele. Very briefly, I think, first of all, it is 
not my intention to comment on the situation in the United 
States, but basically I would try to say that if you put the 
idea of corruption along the idea that this is a personal or 
individual problem, I think that is the wrong direction. If you 
put the idea of corruption in terms of a systemic problem, 
something that it can be viewed somehow empirically and 
therefore improve the system, improve the quality of 
government, then people don't get personally hurt by that, and 
then you can move faster.
    Mr. Cooksey. That is a good comment. Thank you, Mr. 
Chairman.
    I would like to thank my friend Mr. Delahunt. I was 
probably imposing on his time.
    Chairman Gilman. Mr. Delahunt.
    Mr. Delahunt. I want to congratulate you on the work that 
you have done, and I particularly think Transparency 
International has earned and continues to enhance its 
reputation all over the globe. But to pick up on the last point 
by Mr.--how do you pronounce your last name?
    Mr. de Michele. de Michele.
    Mr. Delahunt. Thank you.
    In talking about the systems and your experience with 
corruption in various governments, it is just my own 
observation that corruption appears to be more rampant, in 
those nations where there is a weak judicial system. The 
problem of corruption is far in excess as to what we see in 
democratic societies, democratic nations, where the judicial 
system is an independent and healthy institution.
    It would seem to me that much of what we do here in 
Congress, as well as any administration, we should revisit what 
we do in terms of what we describe as nurturing democratic 
institutions and funding efforts and specifically focus on 
those judicial systems, because, again, thinking specifically 
of Latin America, and wherever there is a serious problem with 
corruption. Just recently we have had the President of Peru 
make an announcement that he was going to call for new 
elections and wouldn't be a candidate himself, and that was 
based upon what presumably was a corrupt act that was 
videotaped, by a high government official.
    Invariably I believe it goes to more specifically a weak 
judicial system and also a judicial system that has no 
independence--or little independence--from the executive 
branches of those nations. That is just an observation. I would 
be interested if you have any comment.
    Mr. Heimann. You are absolutely right. If the judicial 
system is corrupt, other methods of dealing with corruption are 
not going to be effectively enforced. The other side of the 
issue, very few things are harder to reform from the outside 
than judicial systems, and a lot of money has been spent to try 
to inculcate the rule of law from outside. It simply has not 
worked. This does not mean we have to stop trying, because you 
are right, this is absolutely fundamental, and the way TI tries 
to work on this is through the national chapters to develop a 
local constituency interested in doing this.
    Mr. Delahunt. I think you are very effective in that, by 
the way. I think there is a relationship between improvements 
that we do see and the efforts of your national chapters, 
because I really think you bring that attention and that focus 
and that spotlight to what has occurred. But I agree. I mean, 
we have to persevere and persist in trying to find a mechanism 
to effect the kind of change that I think we agree is critical.
    Anyone else?
    Thank you, Mr. Chairman.
    Chairman Gilman. Thank you, Mr. Delahunt.
    Mr. Gejdenson, do you have any further questions?
    Mr. Gejdenson. Mr. Chairman, no. I just want to thank--if I 
could for one moment, thank the panel. I think it is something 
that we have to continue to work on. There are a lot of 
preconceptions that occur both here and elsewhere. I remember 
in 1972 I was in Spain with a young woman who was a college 
graduate. At that time Franco had been head for some time of 
the Spanish Government, and I was talking to her about 
democracy, and she says, oh, we can't have democracy in Spain. 
The Spanish people, we are just not suited to democratic 
institutions. I just could not believe what I was hearing from 
a young university person, well educated. You know what? The 
Spanish people have been pretty good at having democracy in 
Spain.
    So I think a lot of these preconceived notions that there 
are areas of the world--I think Mr. Cooksey's point is well 
taken that the Democrats in Louisiana have been caught, the 
Republicans haven't been caught yet, but certainly will be at 
some point, that we have problems here as well, but we all have 
to work at doing this better. We all have to work to make sure 
that we build the institutions in every society that protect 
the citizenry, whether from war or from thievery internally. We 
can do that together, focusing on the challenges and putting 
away our preconceived notions. Not that we are perfect, not 
that anybody out there is perfect, we have to do the best we 
can. There are lots of approaches.
    I want to thank you, Mr. Chairman, for holding the hearing.
    Chairman Gilman. Dr. Cooksey?
    Mr. Cooksey. Incidentally, you have been wonderful 
witnesses, and this has been a good discussion. It is something 
we really need to address now. I was pleased with your very 
thoughtful and good responses.
    What do you think the comparative impact is of bribes from 
external sources as opposed to those from internal sources in a 
country? You know, let's say there is one country that they are 
building airplanes, and they use bribes to get you to buy their 
airplane, and yet that that same country, they have a lot of 
internal bribery going on. What is the--what are the impacts of 
that on that society, and what is the impact internationally? 
The question again, what is the comparative impact of bribes 
from external sources and those from internal sources? Internal 
being within, Louisiana is bribing Louisiana, as opposed to 
French bribing French, and then across country lines.
    Mr. Abeasi. I believe that since the foreign exchange or 
difference in currencies, naturally foreign bribery has a lot 
more impact if you take the developing countries. Internal 
bribery, circulation of the few CDs or nada, or whatever, in 
there, but when it transfers across borders, then a little bit 
of dollars transfers into a huge amount of local currency. So 
the impact is really huge if it is foreign bribery. This is why 
we need to more careful.
    The only thing is that it is more difficult to detect 
bribery across borders than within. Perhaps that is the only 
difference. But otherwise the impact is heavier when it is from 
outside.
    Mr. Cooksey. Thank you.
    Any other comments?
    Chairman Gilman. Thank you, Dr. Cooksey.
    Do any of the panelists want to make any closing statement? 
Yes.
    Mr. Heimann. I would just like to make one additional point 
at this time. In your opening remarks, Mr. Chairman, you 
referred to the Inter-American Convention as another important 
issue. We couldn't agree more. It is a terribly important 
initiative for the Americas. The one deficiency of that 
Convention is that it did not have a monitoring process, and we 
are convinced that you need a monitoring process to go from 
good intentions to reality, and we hope you and the Committee 
will help this effort along. Particularly there is a Summit of 
the Americas next April in Canada, and we hope that the U.S. 
will make this a top priority deliverable from that convention, 
to make sure from the Summit of the Americas that they will 
then agree to launch this kind of a process.
    Thank you.
    Chairman Gilman. Mr. de Michele, did you want to comment on 
that?
    Mr. de Michele. No.
    Mr. Abeasi. Mr. Chairman, I just wanted to ask you, Mr. 
Heimann, it is not just the monitoring system, but we need a 
reward system that will, you know, highlight the fact that 
people are making progress in fighting this battle so that it 
will have a demonstration effect, especially in our part of the 
world. Thank you.
    Chairman Gilman. Dean Klitgaard?
    Mr. Klitgaard. Nothing further.
    Chairman Gilman. I want to thank our esteemed panelists and 
our Members who took part today. This has been, I think, a very 
helpful session. Please convey our best wishes to those 
participating in tomorrow's summit on corruption. We hope out 
of that summit will come some worthy recommendations. Thank you 
again.
    The Committee stands adjourned.
    [Whereupon, at 4 p.m., the Committee was adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

 Prepared Statement of Hon. Christopher H. Smith, a Representative in 
                 Congress from the State of New Jersey
    Mr. Chairman, I want to thank you for holding this very timely and 
important hearing on the issue of combating corruption--clearly a 
threat to global peace, stability and prosperity, but particularly 
challenging for those nations struggling to develop democratic 
institutions and the rule of law. The Helsinki Commission, which I 
chair, has undertaken a series of hearings on this important topic, 
examining the breadth and depth of the problem in the OSCE region and 
what steps the OSCE can take as an institution to combat corruption and 
organized crime.
    Mr. Chairman, the cancer of corruption and organized crime 
undermines public confidence in government and threatens the 
development of the rule of law in those very countries which are 
striving to shed the legacy of communism and its corrupt and repressive 
system.
    Widespread corruption in the transition countries threatens their 
ability to provide strong and independent legal regimes, market-based 
economies and social well-being for their citizens. Corruption has 
stymied economic reforms in these countries and impeded efforts to 
improve the status of disadvantaged groups. In the absence of effective 
civil rule of law, Mafias have flourished through their corrupt 
connections, gaining power over whole sectors of economies and 
derailing legislative reform agendas inimical to their interest. A 
recent EBRD report recognizes this reality and calls for greater 
efforts among governments and international organizations to 
``depoliticize'' economic activities and develop measures to constrain 
state ``capture'' by private interests. As a result of this ``capture'' 
and siphoning off of public wealth, citizens, deprived in some cases of 
government-sponsored basic support mechanisms, have formed negative 
opinions about democracy and free markets.
    As a concrete example--during a Commission hearing in March of this 
year regarding the human rights situation in Turkmenistan, one of the 
most authoritarian and repressive regimes in the region, opposition 
leader Avdy Kuliev cited three components of President Niyazov's 
internal politics, the first of which is corruption.
    The fact that the Committee is holding this hearing and talking 
about corruption--and not solely in the economic sense, but corruption 
in government and public institutions--is itself refreshing. In the not 
too distant past, many public officials were loath to mention the ``C'' 
word. Many corporations simply accepted the demand for bribes as a cost 
of doing business.
    In recent years, this attitude has begun to change and, frankly, I 
believe the globalization of our economies is in part responsible. 
There is a growing realization throughout the world that bribery is not 
a harmless emollient to the deal. It is poisonous to emerging 
democracies; poisonous to economic development; and poisonous to free 
and fair trade. The business community has come to realize that, in the 
long-term, competing on a level playing field with transparent rules of 
the game is more beneficial to their bottom line, and they have 
strongly supported our government's efforts through the OECD and other 
organizations to develop and implement anti-corruption initiatives.
    The Helsinki Commission has pushed for a greater recognition of the 
threat of organized crime and corruption in the OSCE and has supported 
efforts to develop an OSCE strategy to combat them. During the 1999 
Annual Meeting of the OSCE Parliamentary Assembly in St. Petersburg, 
Russia, our delegation called for the convening of a meeting of OSCE 
Foreign Ministers to develop strategies to combat these threats. We 
also introduced a resolution condemning the cross-border trafficking in 
women and children--a major industry, along with drugs and weapons, for 
organized crime entities. This year, we were successful in having the 
OSCE Parliamentary Assembly adopt as the focus of its work during its 
Ninth Annual Session in Bucharest, Romania, the topic of Promoting 
Transparency in Government and the Rule of Law.
    Our Commission worked closely with the State Department to ensure 
that combating organized crime and corruption was on the agenda of our 
heads of state during the OSCE Summit in Istanbul in November of last 
year. As a result, the OSCE leaders issued their ``Charter for European 
Security'' in which they specifically recognized that corruption poses 
a great threat to the OSCE's shared values, generates instability and 
reaches into many aspects of the security, economic and human 
dimensions. The OSCE Heads of State committed themselves to step up 
efforts across all dimensions of the OSCE to combat corruption and to 
promote the rule of law. They directed the OSCE Permanent Council--the 
Organization's primary working body--to examine how best to contribute 
to efforts combating corruption and to report to the meeting of OSCE 
Foreign Ministers scheduled to convene in Vienna, Austria on November 
27-28, 2000.
    Members of our Commission, and our colleagues in the House and 
Senate, will continue our efforts to develop strategies within the OSCE 
process to combat corruption and promote transparency and the rule of 
law. Mr. Chairman, I look forward to the testimony of our distinguished 
panel of witnesses and any recommendations they may have as to how we 
can continue to address these issues here in the Congress and working 
with the OSCE. Thank you.
                               __________
      Prepared Statement of Fritz Heimann, Chairman, Transparency 
                           International USA
    I want to compliment the Chairman and the Committee for calling 
this hearing. Your title--``The Fight Against Corruption: The 
Unfinished Agenda''--is most pertinent. Over the last half dozen years 
a start has been made in addressing international corruption. However, 
much more needs to be done.
    I represent Transparency International (TI), an NGO formed in 1993 
to combat corruption around the world. TI's headquarters are in Berlin, 
Germany, and we now have a network of national chapters in over 75 
countries. I am one of the founding members of TI, serve on TI's board 
of directors, and am Chairman of its US chapter, TI-USA. I am also 
Counselor to the General Counsel of General Electric.
    TI's first objective, placing corruption high on the international 
agenda has been largely accomplished. There is now widespread 
recognition of the damage done by corruption: undermining democratic 
institutions, distorting market economies, and crippling international 
development programs. This recognition is a big step forward from the 
time when corruption was a taboo subject, and was treated by the 
international community with a mixture of apathy, cynicism and denial.
    The major challenge now is to prove that tangible progress can be 
made to reduce corruption. There still is much skepticism whether 
reforms will work. The current prominence of the issue gives us a 
window of opportunity. However, that window will close unless we can 
show successful results in the next three to five years. This requires 
realistic priorities. The US Government, as well as TI, must be 
selective in focusing resources on programs, countries and institutions 
where success can be achieved in the next few years.
    I will first discuss the OECD Convention on Combating Bribery of 
Foreign Public Officials. That is the most promising initiative so far 
and has the best chance of achieving tangible results. Second, I will 
discuss the outlook for other international conventions and suggest 
some priorities. Finally, I will briefly comment on some other 
initiatives.
           i. oecd convention: current status and next steps
    International conventions deserve priority attention because, in a 
global economy, bribery has taken on international dimensions, and 
multilateral programs are needed to combat it. The OECD Convention to 
Combat Bribery of Foreign Public Officials was signed in December 1997. 
Because the signatories are the home countries of most major 
international companies, the OECD Convention is the ideal tool for 
controlling the supply side of international corruption. Currently 24 
of the 34 signatories have ratified, including nine of the ten largest 
exporters. This means that the necessary critical mass is aboard. We 
must now make sure that the signatories effectively implement and 
enforce the Convention.
    Monitoring Process: Phase 1. A key element of the OECD Convention 
is its process for follow-up monitoring. The first phase of the 
monitoring process, a review of national implementing laws, began in 
the Spring of 1999. The laws of 21 countries have now been reviewed. TI 
and its national chapters have actively participated in the monitoring 
process, submitting our own evaluations to the OECD. For example, TI 
disagreed with the position of the UK government that new legislation 
was unnecessary. We pointed out that existing UK laws did not provide 
an effective basis for prosecuting foreign bribery.
    In June 2000 the OECD Working Group reported to the OECD 
Ministerial on Phase 1 of the monitoring process. The most telling sign 
that the monitoring process is off to a good start is that both the UK 
and Japan were flunked. Not many international institutions have the 
courage to criticize their largest members! As a result, the UK has 
agreed to introduce new legislation this fall. The Japanese government 
has also indicated that it plans to introduce corrective legislation.
    During the next twelve months we need to make sure that 
deficiencies in implementing laws are corrected and that the ten 
remaining signatories ratify the Convention. That includes Argentina, 
Brazil, Chile and the Netherlands. Considerable additional work is 
needed to assure that the Convention will achieve its objectives and 
that the behavior of companies in international trade will really 
change. Four issues deserve the attention of your Committee.
First: Making Phase 2 of the Monitoring Process Work
    Early in 2001 the OECD is scheduled to begin Phase 2 of the 
monitoring process: assessing the effectiveness of national enforcement 
programs. That will be the reality check to determine whether the 
Convention is working. OECD teams will be sent to six countries each 
year to conduct on-site reviews.
    To assure that Phase 2 will be effective, TI has made two 
recommendations to the OECD. First, more adequate staff and budget 
support must be provided. Evaluating enforcement programs is a much 
more difficult task than examining the adequacy of implementing laws 
under Phase 1. Sufficient OECD staff support is not yet assured.
    Second, the monitoring process must be made more transparent. 
Public hearings should be held during each OECD country visit. Experts 
from civil society and the private sector should be allowed to present 
their views and respond to questions from the monitoring team. Making 
the monitoring process more transparent remains a controversial issue 
at the OECD. Many countries prefer to conduct reviews behind closed 
doors. For them, proposals for non-governmental participation raise the 
specter of Seattle-type confrontations. In TI's view, a more open 
process will improve public acceptance and reduce the risk of 
confrontations.
Second: Prohibiting Bribery of Political Party Officials
    The OECD Convention currently prohibits bribery of foreign public 
officials, but does not cover bribery of foreign political party 
officials. TI is concerned that this leaves a dangerous loophole, which 
will be increasingly exploited now that bribery of foreign public 
officials is prohibited. While the US has pressed for coverage of 
political bribery, very few other OECD countries were prepared to 
tackle this controversial subject.
    TI believes that the recent scandals involving Chancellor Kohl and 
his party demonstrate that the time has come to close this loophole. To 
that end, TI is organizing a high-level international group to develop 
recommendations for submission to the OECD. The group will meet in mid-
October in Italy. The meeting will be co-chaired by John Brademas, a 
distinguished former member of this House, and by Peter Eigen, TI's 
Chairman.
Third: Strengthening Accounting, Auditing and Corporate Controls
    In April TI presented to the OECD a detailed survey of current 
practices and requirements relating to (a) books and records, (b) 
auditing practices and (c) internal corporate controls in sixteen OECD 
countries, including the ten largest exporters. The survey was 
conducted by a task force from the Big Five international accounting 
firms.
    The TI Study disclosed that most of the sixteen countries do not 
have legal requirements for internal control systems. Many countries do 
not apply books and records requirements, for example, barring secret 
slush funds, to all companies engaged in international business or to 
foreign subsidiaries. The survey also revealed shortcomings in 
requirements for outside audits and for financial disclosures.
    Prohibitions against foreign bribery cannot be effectively enforced 
unless there are adequate requirements for financial accountability and 
transparency. TI has recommended that the deficiencies identified by 
the Task Force be dealt with during the OECD monitoring process.
Fourth: Publicizing the Convention
    Last Fall TI published a survey of businessmen and other experts in 
international trade, conducted by Gallup International in 19 leading 
emerging markets. It showed that very few of the respondents had heard 
of the OECD Convention. Respondents from major international companies 
were just as ignorant as those from local companies.
    TI recommends that major educational efforts be launched to make 
clear to businessmen both in OECD countries and in key foreign markets 
that bribing foreign officials is now a crime. Businessmen will not pay 
attention to laws of which they are not aware. Another important 
audience should be procurement officials and prosecutors in countries 
where bribes are paid.
    The OECD should be encouraged to publicize the Convention, and the 
State Department could also play a role. A prosecution for foreign 
bribery would undoubtedly provide the best learning experience.
OECD Outreach Program
    Before turning to other issues, I want to comment on the OECD 
Outreach program. The Convention has been signed by five countries that 
are not OECD members, including Argentina, Brazil and Chile, and there 
is an outreach program to obtain additional signatories. Accession by 
countries that play an important role in international trade, such as 
China and Malaysia, would be helpful. However, much broader expansion 
could be counterproductive.
    The OECD operates by consensus, and it took years of work before 
sufficient cohesion was developed to make progress on difficult issues. 
In particular, the effective functioning of peer group reviews, on 
which the monitoring process depends, requires reasonable compatibility 
of economic interests and of legal systems. Large-scale expansion, 
including countries with incompatible interests, could disrupt the 
present constructive atmosphere.
                         ii. other conventions
    The OECD is the best forum for controlling the supply side of 
bribery because it includes the home countries of most major 
international companies. However, unless the demand side is also 
addressed, pressure to pay bribes will continue, and ways to meet such 
demands are likely to be found.
    The demand side is more difficult to tackle because it is not as 
concentrated as the supply side. Every country that imports goods and 
services, or accepts foreign investment, must deal with the demand side 
of international bribery. While all countries have laws prohibiting 
their officials from demanding bribes, in many countries such laws are 
not enforced, or only sporadically enforced. The TI Corruption 
Perceptions Index for 2000, released last week, shows how widespread 
corruption is around the world.
    International conventions are important on the demand side because 
they create a set of consistent norms to guide reform efforts, and 
provide a lever for civil society and the private sector to encourage 
governments to take more effective steps to prevent their officials 
from soliciting bribes. In addition, providing for mutual legal 
assistance through conventions will facilitate investigations and 
prosecutions.
    Efforts to promote international conventions are underway in a 
number of forums.
A. Regional Forums
            Inter-American Convention Against Corruption
    The Inter-American Convention has been ratified by 20 countries, 
including the US. It is broader in scope than the OECD Convention, 
covering both supply and demand sides. However, its provisions are less 
specific, and there is no provision for follow-up monitoring.
    In our view, follow-up monitoring is essential to transform the 
Convention's good intentions into practical effect. The Organization of 
American States (OAS) provides an institutional base for a monitoring 
program. However, the use of strong peer pressure, as displayed by the 
OECD, goes beyond the customary practices of OAS. During the past year 
there has been increasing recognition in the Americas that a monitoring 
program is needed. This has been actively encouraged by TI's national 
chapters.
    The OAS is currently considering what kind of monitoring process 
would be most suitable, and should make its recommendation before the 
end of this year. The US delegation to the April 2001 Summit of the 
Americas in Quebec should make it a high priority to secure a decision 
by the leaders at the Summit to launch the monitoring process. We urge 
your Committee to support such action. Six OAS members, including 
Argentina, Brazil, Chile and Mexico have signed the OECD Convention, 
and are committed to participation in the OECD monitoring process. That 
provides a useful precedent for similar action under the Inter-American 
Convention.
    An OAS monitoring process would require adequate resources. The 
Inter-American Development Bank should be asked to help provide 
funding.
            Council of Europe Conventions
    The Council of Europe is working on three conventions to curb 
corruption. One covers criminal law, one covers civil law, and one 
establishes a monitoring program. The membership of the COE includes 
the fifteen countries of the European Union as well as countries from 
Central and Eastern Europe. The US has observer status.
    The COE program should be encouraged by the US. In particular, the 
convention establishing the monitoring program, referred to as GRECO, 
could become a potentially promising vehicle for strengthening the 
institutional capability of legal systems in Central and Eastern 
Europe. Whether this promise can be realized will depend on whether 
sufficient resources will be provided by the wealthier countries from 
the European Union, and on whether there is enough political will to 
make difficult changes in Central and Eastern Europe.
            Prospects for Other Regional and Global Conventions
    There have been proposals for regional conventions for Africa and 
Asia, as well as for a global convention under UN, or possibly WTO, 
auspices. There is not enough time for me to discuss these initiatives. 
I only want to refer back to my earlier comment about the need to 
concentrate on programs that have a realistic prospect for achieving 
tangible results in the next few years. Additional conventions dealing 
with corruption are unlikely to be productive unless (a) the 
participants have reasonably compatible legal systems and economic 
interests, and (b) there is an institutional base for follow-up 
monitoring.
                         iii. other initiatives
    TI and the International Chamber of Commerce have promoted the 
adoption of corporate compliance programs by the private sector. Such 
programs are an essential complement to international conventions and 
national legislation against corruption. Criminal enforcement can deal 
with a small percentage of violators, if the majority of companies 
comply voluntarily. Laws remain ineffective if the majority fails to 
comply.
    TI believes that the World Bank and other international financing 
institutions can promote more rapid acceptance of corporate compliance 
programs by making the adoption of such programs a precondition for 
participation in project that they finance. When we previously proposed 
such a requirement, it was argued that this would limit the pool of 
eligible bidders because few non-US companies had adopted anti-bribery 
compliance programs. Such arguments are no longer appropriate now that 
the OECD Convention has made foreign bribery a crime in 24 major 
exporting states. Here again, support from your Committee would be very 
helpful
    Before concluding I want to express TI's appreciation for the role 
that the US Government has played in the fight against international 
corruption. Without strong US leadership such initiatives at the OECD 
and OAS Conventions would not have gotten underway. Many people at the 
Departments of State, Commerce, Justice and Treasury have been actively 
involved. We also appreciate the strong support provided by the 
Congress.
    The fight against corruption now has broad international support. 
TI is proud of its role in developing such support. We are convinced 
that continued US commitment is essential to move from an encouraging 
start to the next phase, achieving of tangible results. Thank you for 
your interest and support.

































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   Prepared Statement of Robert Klitgaard, Dean, Rand Graduate School
    Thank you for inviting me to testify on efforts to fight global 
corruption. I am Robert Klitgaard, Dean and Ford Distinguished 
Professor of International Development and Security, the RAND Graduate 
School in Santa Monica, California. The Graduate School is part of 
RAND, a nonprofit institution that helps improve policy and 
decisionmaking through research and analysis. The opinions and 
conclusions expressed in this testimony are mine and should not be 
interpreted as representing those of RAND or any of the agencies or 
others sponsoring my research.
    One part of the unfinished agenda in the international fight 
against corruption is how to invite in the private sector.
    After all, corruption does not just involve government. Business 
people and lawyers and citizens pay the bribes, even as they condemn 
bribery. They should be invited to become part of the solution. But 
how?
    The first point to note is that business people and citizens know 
where corruption exists and how corrupt systems work. Citizens 
understand how bribery shapes the services they receive or don't 
receive. Accountants know the illicit games played with audits and 
taxes. Lawyers understand corrupt legal practices. Business people know 
all about corrupt systems of procurement and contracting.
    But there is a second point: they know, but they can't say, at 
least not publicly. In many countries, if an individual stands up to 
denounce a corrupt system, he or she will be attacked by it.
    So, the trick is how to learn what people know about corruption 
without asking them to commit suicide.
    Please consider this idea. With the leadership of the American 
government and our private sector, other countries are invited to join 
in an international effort. Together we pick three areas that are 
particularly prone to corruption, such as procurement, pharmaceuticals, 
and the police.
    In each country, people in the private sector are asked in 
confidential interviews how corrupt systems work, but not about 
specific individuals. The results of many such interviews becomes a 
diagnostic of each area. What is the informal process, how extensive is 
the corruption, how does it work, how do its perpetrators avoid 
detection or prosecution?
    Using the diagnostic, improvements are sought. How can formal 
systems be strengthened? How can corrupt systems be subverted? Answers 
are developed through cooperation between government and the private 
sector.
    Reforms follow. And then, after some time, the same sorts of 
confidential interviews leading to diagnostics are used to monitor 
progress.
                           political benefits
    This idea is politically attractive, especially compared with the 
usual anti-corruption strategies, which many countries find offensive.
    Imagine you are the president of country X. Suppose you are told 
that as a condition for foreign aid you must clean up corruption in 
your government. This may put you in a tough spot. If you agree to the 
demands, the opposition may say, ``Yes, we told you so and now they 
admit it'this administration is corrupt.'' Your cabinet members and 
your civil servants may wonder why you are bashing them.
    Now contrast your reaction to the idea proposed here, an 
international effort that invites in the private sector. You are 
pleased that all sectors and all countries are combining to battle this 
universal problem, the cancer of international corruption. You point 
out that the diagnostic studies are being carried out in many 
countries, including the United States, and that these studies address 
the international dimensions of bribery as well. You are glad that the 
private sector and citizens in general are recognizing that this 
problem involves all of us, that all of us must be part of the 
solution. And so forth--I think we all can begin to write the speech.
    There is a final advantage to the idea: it is relatively 
inexpensive. We are talking about a total of perhaps 100 to 150 
confidential interviews per country, some culling and sharing both 
nationally and internationally, appropriate remedial measures, and 
follow-up.
                         what needs to be done?
    How might this idea be pursued?

    1. LDevelop the idea in dialogue with USAID, the Commerce 
Department, business organizations, and organizations such as 
Transparency International.

    2. LShare the concept with other countries for further refinement.

    3. LWith these collaborators, design the diagnostic study of the 
three or four sectors per country.

    4. LOrganize the collection of data in each country. 
Confidentiality of individuals surveyed is important, so it may be 
advisable to involve non-nationals in the administration of the survey.

    5. LShare the results of the diagnostic study with the private 
sector, citizens' groups, and government officials. Redraft it and come 
up with joint recommendations (for both the private sector and 
government, of both national and international scope).

    6. LShare the results and recommendations in an international 
meeting.

    7. LImplement the recommendations, perhaps with international 
cooperation.

    8. LFollow up progress a year later and thereafter.

    9. LLeverage the partnerships developed through this process to 
take further steps in the fight against corruption.
                               conclusion
    To conclude, ``inviting in the private sector'' means learning what 
business people, professionals, and citizens know about problems and 
solutions but are unable publicly to proclaim.
    In the particular idea I've outlined here, the United States would 
take the lead in a set of international, private-sector-based studies 
of how corrupt systems work and how they might be cleaned up. The idea 
goes beyond international conventions and codes of conduct. It goes 
beyond foreign aid directed at capacity building or ``more of the 
same.'' Inviting the private sector should be part of the new agenda in 
international cooperation against corruption.

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