[Congressional Record Volume 145, Number 78 (Thursday, May 27, 1999)]
[Senate]
[Pages S6321-S6323]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. McCAIN (for himself, Mr. Cochran, and Mr. Burns):
  S. 1169. A bill to require that certain multilateral development 
banks and other lending institutions implement independent third party 
procurement monitoring, and for other purposes; to the Committee on 
Foreign Relations.


              competition in foreign commerce act of 1999

  Mr. McCAIN. Mr. President, I along with Senators Cochran and Burns 
are proud to introduce the Fair Competition in Foreign Commerce Act of 
1999, to address the serious problem of waste, fraud and abuse 
resulting from bribery and corruption in international development 
projects. This legislation will set conditions for U.S. funding through 
multilateral development banks. These conditions will require the 
country receiving aid to adopt substantive procurement reforms and 
independent third-party procurement monitoring of their international 
development projects.
  During the cold war, banks and governments often looked the other way 
as pro-western leaders in developing countries treated national 
treasuries as their personal treasury troves. Today, we cannot afford 
to look the other way when we see bribery and corruption running 
rampant in other countries because these practices undermine our goals 
of promoting democracy and accountability, fostering economic 
development and trade liberalization, and achieving a level playing 
field throughout the world for American businesses.
  The United States is increasingly called upon to lead multilateral 
efforts to provide much-needed economic assistance to developing 
nations. The American taxpayers make substantial contributions to the 
International Bank for Reconstruction and Development, the 
International Development Association, the International Finance 
Corporation, the Inter-American Development Bank, the International 
Monetary Fund, the Asian Development Bank, the Inter-American 
Investment Corporation, the North American Development Bank, and the 
African Development Fund.
  However, it is critical that we take steps to ensure that Americans' 
hard-earned tax dollars are being used appropriately. The Fair 
Competition in Foreign Commerce Act of 1999 is designed to decrease the 
stifling effects of bribery and corruption in international development 
contracts. By doing so, we will (1) enable U.S. businesses to become 
more competitive when bidding against foreign firms which secure 
government contracts through bribery and corruption; (2) encourage 
additional direct investment to developing nations, thus increasing

[[Page S6322]]

their economic growth, and (3) increase opportunities for U.S. 
businesses to export to these nations as their economies expand and 
mature.
  Multilateral lending efforts are only effective in spurring economic 
development if the funds are used to further the intended development 
projects, not to line the pockets of foreign bureaucrats and their 
well-connected political allies.
  When used for its intended purpose, foreign aid yields both short- 
and long-term benefits to U.S. businesses. Direct foreign aid assists 
developing nations to develop their infrastructure. A developed 
infrastructure is vital to creating and sustaining a modern dynamic 
economy. Robust new economies create new markets to which U.S. 
businesses can export their goods and services. Exports are key to the 
U.S. role in the constantly expanding and increasingly competitive 
global economy.
  The current laws and procedures designed to detect and deter 
corruption after the fact are inadequate and meaningless. This bill 
seeks to ensure that U.S. taxpayers' hard-earned dollars contributed to 
international projects are used appropriately, by detecting and 
eliminating bribery and corruption before they can taint the integrity 
of international projects. Past experience illustrates that it is 
ineffective to attempt to reverse waste, fraud, and abuse in large-
scale foreign infrastructure projects, once the abuse has already 
begun. Therefore, it is vital to detect the abuses before they occur.
  The Fair Competition in Foreign Commerce Act of 1999 requires the 
United States Government, through its participation in multilateral 
lending institutions and in its disbursement of non-humanitarian 
foreign assistance funds, to: (1) require the recipient international 
financial institution to adopt an anti-corruption plan that requires 
the aid recipient to use independent third-party procurement monitoring 
services, at each stage of the procurement process to ensure openness 
and transparency in government procurements, and (2) require the 
recipient nation to institute specific strategies for minimizing 
corruption and maximizing transparency in procurements at each stage of 
the procurement process. The legislation directs the Secretary of the 
Treasury to instruct the United States Executive Directors of the 
various international institutions to use the voice and vote of the 
United States to prevent the lending institution from providing funds 
to nations which do not satisfy the procurement reforms criteria.
  This Act has two important exceptions. First, it does not apply to 
assistance to meet urgent humanitarian needs such as providing food, 
medicine, disaster, and refugee relief. Second, it also permits the 
President to waive the funding restrictions with respect to a 
particular country, if making such funds available is important to the 
national security interest of the United States.
  Independent third-party procurement monitoring is a system where an 
uninvolved entity conducts a program to eliminate bias, to promote 
transparency and open competition, and to minimize fraud and 
corruption, waste and inefficiency and other misuse of funds in 
international procurements. The system does this through an independent 
evaluation of the technical, financial, economic and legal aspects of 
each stage of a procurement, from the development and issuance of 
technical specifications, bidding documents, evaluation reports and 
contract preparation, to the delivery of goods and services. This 
monitoring takes place throughout the entire term of the international 
development project.
  Mr. President, this system has worked for other governments. 
Procurement reforms and third-party procurement monitoring resulted in 
the governments of Kenya, Uganda, Colombia, and Guatemala experiencing 
significant cost savings in recent procurements. For instance, the 
Government of Guatemala experienced an overall savings of 48% when it 
adopted a third-party procurement monitoring system and other 
procurement reform measures in a recent contract for pharmaceuticals.
  Mr. President, bribery and corruption have many victims. Bribery and 
corruption hamper vital U.S. interests. Both harm consumers, taxpayers, 
and honest traders who lose contracts, production, and profits because 
they refuse to offer bribes to secure foreign contracts.
  Bribery and corruption have become a serious problem. A World Bank 
survey of 3,600 firms in 69 countries showed 40% of businesses paying 
bribes. More startling is that Germany still permits its companies to 
take a tax deduction for bribes. Commerce Secretary Daley summed up the 
serious impact of bribery and corruption upon American businesses 
ability to compete for foreign contracts in 1997:

       Since mid-1994, foreign firms have used bribery to win 
     approximately 180 commercial contracts valued at nearly $80 
     billion. We estimate that over the past year, American 
     companies have lost at least 50 of these contracts, valued at 
     $15 billion. And since many of these contracts were for 
     groundbreaking projects--the kind that produce exports for 
     years to come--the ultimate cost could be much higher.

  Since then American companies have continued to lose international 
development contracts because of unfair competition from businesses 
paying bribes. This terrible trend must be brought to a halt.
  Exports will continue to play an increasing role in our economic 
expansion. We can ill afford to allow any artificial impediments to our 
ability to export. Bribery and corruption significantly hinder American 
businesses' ability to compete for lucrative overseas government 
contracts. American businesses are simply not competitive when bidding 
against foreign firms that have bribed government officials to secure 
overseas government contracts. Openness and fairness in government 
contracts will greatly enhance opportunities to compete in the rapidly 
expanding global economy. Exports equate to jobs. Jobs equate to more 
money in hard-working Americans' pockets. More money in Americans' 
pockets means more money for Americans to save and invest in their 
futures.
  Bribery and corruption also harm the country receiving the aid 
because bribery and corruption often inflate the cost of international 
development projects. For example, state sponsorship of massive 
infrastructure projects that are deliberately beyond the required 
specification needed to meet the objective is a common example of the 
waste, fraud, and abuse inherent in corrupt procurement practices. 
Here, the cost of corruption is not the amount of the bribe itself, but 
the inefficient use of resources that the bribes encourage.

  Bribery and corruption drive up costs. Companies are forced to 
increase prices to cover the cost of bribes they are forced to pay. A 
2% bribe on a contract can raise costs by 15%. Over time, tax revenues 
will have to be raised or diverted from other more deserving projects 
to fund these excesses. Higher taxes and the inefficient use of 
resources both hinder growth.
  The World Bank and the IMF both recognize the link between bribery 
and corruption, and decreased economic growth. Recent studies also 
indicate that high levels of corruption are associated with low levels 
of investment and growth. Furthermore, corruption lessens the 
effectiveness of industrial policies and encourages businesses to 
operate in the unofficial sector in violation of tax and regulatory 
laws. More important, corruption breeds corruption and discourages 
legitimate investment. In short, bribery and corruption create a 
``lose-lose'' situation for the U.S. and developing nations.
  The U.S. recognizes the damaging effects bribery and corruption have 
at home and abroad. The U.S. continues to combat foreign corruption, 
waste, and abuse on many fronts--from prohibiting U.S. firms from 
bribing foreign officials, to leading the anti-corruption efforts in 
the United Nations, the Organization of American States, and the 
Organization for Economic Cooperation and Development (``OECD''). The 
U.S. was the first country to enact legislation (the Foreign Corrupt 
Practices Act) to prohibit its nationals and corporations from bribing 
foreign public officials in international and business transactions.
  However, we must do more. The Foreign Corrupt Practices Act prevents 
U.S. nationals and corporations from bribing foreign officials, but 
does nothing to prevent foreign nationals and corporations from bribing 
foreign officials to obtain foreign contracts. Valuable resources are 
often diverted or squandered because of corrupt officials or the use of 
non-transparent specifications, contract requirements and the

[[Page S6323]]

like in international procurements for goods and services. Such corrupt 
practices also minimize competition and prevent the recipient nation or 
agency from receiving the full value of the goods and services for 
which it bargained. In addition, despite the importance of 
international markets to U.S. goods and service providers, many U.S. 
companies refuse to participate in international procurements that may 
be corrupt.
  This legislation is designed to provide a mechanism to ensure, to the 
extent possible, the integrity of U.S. contributions to multilateral 
lending institutions and other non-humanitarian U.S. foreign aid. 
Corrupt international procurements, often funded by these multilateral 
banks, weaken democratic institutions and undermine the very 
opportunities that multilateral lending institutions were founded to 
promote. This will encourage and support the development of transparent 
government procurement systems, which are vital for emerging 
democracies constructing the infrastructure that can sustain market 
economies.
  Mr. President, on behalf of the millions of Americans who will 
benefit from increased opportunities for U.S. businesses to participate 
in the global economy, and the billions of people in developing nations 
throughout the world who are desperate for economic assistance, I urge 
my colleagues to support this legislation and demonstrate their 
continued commitment to the orderly evolution of the global economy and 
the efficient use of American economic assistance.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1169

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Fair Competition in Foreign 
     Commerce Act of 1999''.

     SEC. 2. FINDINGS AND STATEMENT OF PURPOSE.

       (a) Findings.--Congress finds that--
       (1) The United States makes substantial contributions and 
     provides significant funding for major international 
     development projects through the International Bank for 
     Reconstruction and Development, the International Development 
     Association, the International Finance Corporation, the 
     Inter-American Development Bank, the International Monetary 
     Fund, the Asian Development Bank, the Inter-American 
     Investment Corporation, the North American Development Bank, 
     the African Development Fund, and other multilateral lending 
     institutions.
       (2) These international development projects are often 
     plagued with fraud, corruption, waste, inefficiency, and 
     misuse of funding.
       (3) Fraud, corruption, waste, inefficiency, misuse, and 
     abuse are major impediments to competition in foreign 
     commerce throughout the world.
       (4) Identifying these impediments after they occur is 
     inadequate and meaningless.
       (5) Detection of impediments before they occur helps to 
     ensure that valuable United States resources contributed to 
     important international development projects are used 
     appropriately.
       (6) Independent third-party procurement monitoring is an 
     important tool for detecting and preventing such impediments.
       (7) Third-party procurement monitoring includes evaluations 
     of each stage of the procurement process and assures the 
     openness and transparency of the process.
       (8) Improving transparency and openness in the procurement 
     process helps to minimize fraud, corruption, waste, 
     inefficiency, and other misuse of funding, and promotes 
     competition, thereby strengthening international trade and 
     foreign commerce.
       (b) Purpose.--The purpose of this Act is to build on the 
     excellent progress associated with the Organization on 
     Economic Development and Cooperation Agreement on Bribery and 
     Corruption, by requiring the use of independent third-party 
     procurement monitoring as part of the United States 
     participation in multilateral development banks and other 
     lending institutions and in the disbursement of 
     nonhumanitarian foreign assistance funds.

     SEC. 3. DEFINITIONS.

       (a) Definitions.--In this Act:
       (1) Appropriate committees.--The term ``appropriate 
     committees'' means the Committee on Commerce, Science, and 
     Technology of the Senate and the Committee on Commerce of the 
     House of Representatives.
       (2) Independent third-party procurement monitoring.--The 
     term ``independent third-party procurement monitoring'' means 
     a program to--
       (A) eliminate bias,
       (B) promote transparency and open competition, and
       (C) minimize fraud, corruption, waste, inefficiency, and 
     other misuse of funds,

     in international procurement through independent evaluation 
     of the technical, financial, economic, and legal aspects of 
     the procurement process.
       (3) Independent.--The term ``independent'' means that the 
     person monitoring the procurement process does not render any 
     paid services to private industry and is neither owned nor 
     controlled by any government or government agency.
       (4) Each stage of procurement.--The term ``each stage of 
     procurement'' means the development and issuance of technical 
     specifications, bidding documents, evaluation reports, 
     contract preparation, and the delivery of goods and services.
       (5) Multilateral development banks and other lending 
     institutions.--The term ``multilateral development banks and 
     other lending institutions'' means the International Bank for 
     Reconstruction and Development, the International Development 
     Association, the International Finance Corporation, the 
     Inter-American Development Bank, the International Monetary 
     Fund, the Asian Development Bank, the Inter-American 
     Investment Corporation, the North American Development Bank, 
     and the African Development Fund.

     SEC. 4. REQUIREMENTS FOR FAIR COMPETITION IN FOREIGN 
                   COMMERCE.

       (a) In General.--Not later than 180 days after the date of 
     enactment of this Act, the Secretary of the Treasury shall 
     transmit to the President and to appropriate committees of 
     Congress a strategic plan for requiring the use of 
     independent third-party procurement monitoring and other 
     international procurement reforms relating to the United 
     States participation in multilateral development banks and 
     other lending institutions.
       (b) Strategic Plan.--The strategic plan shall include an 
     instruction by the Secretary of the Treasury to the United 
     States Executive Director of each multilateral development 
     bank and lending institution to use the voice and vote of the 
     United States to oppose the use of funds appropriated or made 
     available by the United States for any non-humanitarian 
     assistance, until--
       (1) the recipient international financial institution has 
     adopted an anticorruption plan that requires the use of 
     independent third-party procurement monitoring services and 
     ensures openness and transparency in government procurement; 
     and
       (2) the recipient country institutes specific strategies 
     for minimizing corruption and maximizing transparency in each 
     stage of the procurement process.
       (c) Annual Reports.--Not later than June 29 of each year, 
     the Secretary of the Treasury shall report to Congress on the 
     progress in implementing procurement reforms made by each 
     multilateral development bank and lending institution and 
     each country that received assistance from a multilateral 
     development bank or lending institution during the preceding 
     year.
       (d) Restrictions on Assistance.--Notwithstanding any other 
     provision of law, no funds appropriated or made available for 
     nonhumanitarian foreign assistance programs, including the 
     activities of the Agency for International Development, may 
     be expended for those programs unless the recipient country, 
     multilateral development bank or lending institution has 
     demonstrated that--
       (1) procurement practices are open, transparent, and free 
     of corruption, fraud, inefficiency, and other misuse, and
       (2) independent third-party procurement monitoring has been 
     adopted and is being used by the recipient.

     SEC. 5. EXCEPTIONS.

       (a) National Security Interest.--Section 4 shall not apply 
     with respect to a country if the President determines with 
     such respect to such country that making funds available is 
     important to the national security interest of the United 
     States. Any such determination shall cease to be effective 6 
     months after being made unless the President determines that 
     its continuation is important to the national security 
     interest of the United States.
       (b) Other Exceptions.--Section 4 shall not apply with 
     respect to assistance to--
       (1) meet urgent humanitarian needs (including providing 
     food, medicine, disaster, and refugee relief);
       (2) facilitate democratic political reform and rule of law 
     activities;
       (3) create private sector and nongovernmental organizations 
     that are independent of government control; and
       (4) facilitate development of a free market economic 
     system.
                                 ______