Daniel Zender/The Globe and Mail
The Canadian contractor offered a simple explanation for failing to win a lucrative piece of an infrastructure deal that would have marked his company’s first foray into a rising Asian market. The successful bidder, he told me, “brought a bigger suitcase.”
That was more than 30 years ago, when I was interviewing business people about their experiences in emerging markets. Often, the key to their success depended on knowing where the bribes had to go. Everyone understood this was the cost of doing business. Today, despite stiffer penalties in a slew of exporting countries and politicians' repeated vows to stamp out homegrown corruption, remarkably little has changed. The fact remains that if you're planning on doing business in a large swath of the developing world, you still face the prospect of dealing with official corruption, endemic bribery and a distinct lack of legal safeguards.
It's outrageous that so little has been done to stamp out an ancient scourge that inflicts so much economic damage on poor countries: inflating costs, reducing competition, hurting investment, sowing public distrust and increasing political instability. And as the SNC-Lavalin affair shows, relying on bribery as a business strategy can come back years later to haunt the corporations involved, damaging company reputations, scaring off investors and preventing access to public contracts.
The World Bank, which has barred SNC-Lavalin and hundreds of other firms from bidding on any of its projects, pegs the total amount of business bribes being paid annually at $1 trillion or more. Other experts say the figure may be less than half that. But it still adds up to vast sums that could have been earmarked for far more productive investments capable of generating real longer-term benefits for the companies involved and the markets in which they operate.
We're not talking here of the countless small payments required in many parts of the world to get permits stamped, speed goods through customs or improve relations with local police—what Russians call podmazyvat, or grease. The serious damage stems from the huge bribes public officials demand to secure rich contracts, extract natural resources, keep plants operating and squeeze out rivals.
Ottawa has long insisted it takes a zero-tolerance approach to Canadian companies engaging in this sort of behaviour abroad.
But that's not what the evidence shows. Last September, in its most recent assessment of how governments that have committed to tackling foreign bribery are faring, global watchdog Transparency International gave Canada a lower grade on enforcement of its own laws than it earned in its previous report card in 2015.
Plenty of other governments have considerable room for improvement, as a string of remarkable scandals has underscored.
Half of the nations examined, including China, India, Mexico, Japan and such European Union stalwarts as Spain, Ireland and Denmark, do little or nothing to prosecute offenders.
One country doing a better job of cleaning up its house is Brazil, thanks to a long-running anti-corruption probe known as Operação Lava Jato (Operation Car Wash).
Investigators uncovered a vast web of bribery and money laundering involving state oil giant Petrobras, prominent construction and engineering companies, and the country's major political parties. Dozens of executives, officials and politicians have been indicted and convicted. But the skulduggery extended far beyond Brazil's borders and included one scheme so audacious it left prosecutors awestruck.
Brazilian construction powerhouse Odebrecht SA and Braskem, its petrochemical venture, admitted in 2016 to dispersing nearly US$800 million in bribes to leading politicians, officials, executives with state-controlled enterprises, bankers, advisers and various fixers to score more than 100 deals in a dozen emerging countries in Latin America and Africa. In Brazil alone, Odebrecht made illicit payments to 26 political parties and 400-plus politicians, including nearly a third of the country's senators. “It makes the Watergate scandal look like a couple of kids playing in a sandbox,” the lead prosecutor told the BBC last year.
The U.S. Justice Department teamed up with Brazilian and Swiss authorities to extract a guilty plea and a record fine of US$3.5 billion. Disgraced CEO Marcelo Odebrecht, whose grandfather founded the company in 1944, served two years of a 19-year prison stretch before reaching a deal to tell all in exchange for a reduced term—spent under house arrest at his elegant São Paulo mansion. Among those he implicated was Brazil’s then president Michel Temer.
Former Peruvian president Alan Garcia killed himself in April when police arrived at his home to arrest him in connection with the scandal. Three other former presidents are under investigation. Ecuador's vice-president got a six-year prison term.
Other multinational miscreants may not have achieved that level of organized crime, but their cases are still eye-popping. In 2017, Italian prosecutors indicted Royal Dutch Shell, plus Italian oil and gas major Eni SpA, its CEO, his predecessor and other executives of both companies for allegedly paying about US$1.1 billion in bribes in 2011 through a Nigerian company controlled by Dan Etete, a former oil minister.
Etete, a convicted money launderer, allegedly doled out a chunk of the loot to then president Goodluck Jonathan and other senior government officials. For helping a handful of Nigerians with their retirement plans, the European companies gained exclusive control of a huge undeveloped offshore oil field. The government ended up receiving only US$200 million for the licence. A watchdog group claims Nigeria will lose billions in potential revenue because the deal makes no provision for royalty payments. The oil giants have denied any wrongdoing, although Shell learned in March that it will also face charges in the Netherlands.
So much of the world has run for so long on the fuel of bribery that it's hard to see it ever being eliminated. But that doesn't mean governments and corporations should stop trying.
The toxic tide could at least be stemmed if more of the 44 countries that have signed on to the Organisation for Economic Cooperation and Development’s 20-year-old anti-bribery convention did a better job of bridging the yawning gap between the tough laws on their books and their less-than-stellar enforcement records.
A good start in Canada and elsewhere would be devoting considerably more resources to both the pursuit and prosecution of alleged offenders.
Although such cases are notoriously complicated, time-consuming and costly, they're worth the trouble. Making it too risky for corporations to turn to bribery might dissuade politicians from making graft part of their playbooks. Who knows? They might even discover there are advantages to running countries with stronger growth, higher per capita incomes, increased foreign investment and healthier domestic competition.