Posted: December 16, 2011 |  AUTHOR: KEN FOX | CONTACT ME

 

Global corruption is getting worse. More companies and government officials are being caught for graft, kick-backs, price fixing or bribes. Anti-corruptions laws, whistle-blowers and diligent law enforcement agencies area not making enough of a difference on global crime. Increased corruption, especially in countries like Africa have held back economic progress, health and benefits to a struggling population who want employment, better healthcare and affordable basics to make life easier,

Years ago, Ratan Tata, the CEO of India’s largest conglomerates (annual sales $85 billion) and one of the country’s wealthiest individuals wanted to start a new airline. After being asked for a bribe and other possible corruptive acts he decided not to move forward on his idea. More recently, Indian officials arrested Suresh Kalmadi, the chief organizer of last year’s (October 2010) Commonwealth Games in New Delhi, India, on corruption charges. In some countries minor corruption is common or expected. However, global trends show corruption is more prevalent than expected, and surprisingly, more so in growing and emerging countries.

Passage of the Foreign Corruption Practices Act (FCPA) in 1977, anti-dumping membership in the World Trade Organization and various watchdog agencies may help to fight corruption, but seems to be only slightly effective. The World Bank established regional anticorruption enforcement personnel in a network known as the “International Corruption Hunter’s Alliance.” The alliance is especially looking to identify global bribery cases

Here is a short list of the some of the global corruption cases brought forward:
1. November 2011, GlaxoSmithKline PLC (UK) agreed to pay the US. Government about $3 billion for a variety of charges by the U.S. Justice Dept and the Food & Drug Administration (FDA). These charges included a claim the company defrauded the Medicaid program. The payment also settled an eight year long case against the company for promoting two drugs, Paxil and Wellburtin, for off-label marketing.

2. November 2011, the South Korean Fair Trade Commission (KFTC) fined flat panel TV manufacturers in Taiwan and South Korea for price fixing, for a total of $175 million. The companies involved were divisions of Samsung and LG in South Korea, and Chungwa Picture Tubes and HannStar Display in Taiwan.

3. U.S. subsidiary, Samsung Semiconductor pled guilty and paid a $300 million fine to the U.S. Dept. of Justice for an “international conspiracy” to fix prices on DRAM (dynamic RAM).

4. In early 2009, U.S. based Halliburton paid $579 million to the U.S. government to settle charges it had bribed Nigerian officials to win a contract.

5. In late 2008, German telecommunications giant Siemens paid $1.6 billion in fines, penalties and disgorgement of profits to the German and U.S. governments for bribing officials.

The current new Brazilian President Dilma Rouseff has had six ministers, so far in 2011; depart her cabinet due to corruption. “The (Brazilian) ministers have increasingly come under scrutiny as conduits for bribes, kickbacks and other barter in political deal making” (Wall Street Journal, Nov. 12, 2011).

At the time of this writing, Russia is being approved to enter the World Trade Organization (WTO). It has taken quite a long time for Russia to decide to become a member and it faced resistance from existing members (such as Georgia) to let it enter. Russia is known to be very corrupt. Ideally, foreign direct investment in Russia, international trade in general and business dealing with Russia will ideally benefit once Russian becomes a WTO member. As a member, trade disputes can be taken to the WTO to be resolved. However, will Russia become a more respectful place to do business once they become a WTO member? Who knows, but I doubt it. I think global corruption is increasing for a number of reasons:
1. Pressure on foreign governments to improve their GNPs to attract foreign loans from organizations like the UN, IMF, World Bank and others.
2. Pressure on corporations to increase profitability to appease shareholders and attract investments in their companies.
3. The increased focus on “terror” by enforcement agencies may deflect their attention against political and corporate corruption.

Independent companies monitor and rate countries by perceived corruption levels. One such company is Transparency International (based in Berlin) which generates a Corruption Perception Index (CPI) by country. What follows is a select list of 2011 country ratings, where a rating of 10 is very clean and 0 (zero) is highly corrupt.

Source: Transparency International Corruption Perception Index, 2011, based on 13 independent surveys of 183 countries.

Based on the above chart, the growing BRICS (Brazil, Russia, India, China and South Africa) seem relatively more corrupt than other countries. The above is based only on one year of data but I believe reflects reality.

Other findings from Transparency International include:
-Corruption has increased over the last three years.
-The police are cited as being the most frequent recipient of bribes (which have doubled since 2006)
-Few people (anywhere) seem to trust their governments or politicians
-Corruption remains an obstacle to achieving much needed progress.

The above findings are especially unnerving as Foreign Direct Investment (especially from the U.S., Europe and China) is increasing, as companies search for growth outside their home operations. One wonders if country law enforcement and other global agencies fighting terror are being deflected from pursuing corruption cases. We read about companies and government officials being caught, prosecuted or penalized, but will it really deter others from doing the same? I think prosecutions and fines are only scratching the surface. I also question how newly governed Middle Eastern countries such as: Iraq, Egypt. Tunisia, Libya and others will prevent and monitor corruption, or will it continue being a cost of doing business in these countries?

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©2017, The Global Galaxy blog is produced by The Soundings Group, LLC, Charleston, South Carolina, USA, www.thesoundingsgroup.com. The company is an international business consulting firm, specializing in new market assessments, market entry strategies and marketing guidance. The scope of Global Galaxy is to cover timely international trends, issues and business building ideas. Its purpose is to educate, inform and stimulate thinking for business opportunity analyses.

 

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