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USIS Washington File

15 February 2000

Transcript: State's Larson at Hearing on OECD Anti-Corruption Drive

(Feb. 14: Opening statement and Q&A session) (4,720)

Alan Larson, U.S. Under Secretary of State for Economic, Business and
Agricultural Affairs, briefed journalists February 14 at the State
Department on U.S. and international anti-corruption efforts.

He pointed out that 21 of the 34 signatory countries to the
anti-bribery convention of the Organization for Economic Cooperation
and Development (OECD) have now ratified it, thus making it "a crime
for their citizens to bribe a foreign government official to obtain or
retain international business."

The 29 OECD members, comprising many of the world's market economies,
plus five countries from Latin America and eastern Europe have signed
the treaty, which entered into force on February 15, 1999.

Larson said the domestic anti-bribery laws of 16 countries have been
reviewed, and that the next phase will involve monitoring enforcement
of the convention.

He said several loopholes still need to be closed: 13 signatory states
have not ratified the convention; France is considering legislation
that appears to authorize the payment of bribes if companies claim
that the bribes had been promised in the past; the United Kingdom uses
a 1906 law that does not cover bribery committed outside the country;
and Japan's law lacks strong penalties and contains "significant
loopholes." Furthermore, some signatory states still permit tax
deductions for bribes paid foreign governments and officials.

Developed countries "have to be a part of the solution," Larson said.
"So we do encourage all the signatories to the OECD convention that
have not already done so to use the next six months to ratify the
convention, to enact effective domestic implementing legislation, and
to end the practice of granting tax deductions for overseas commercial
bribes."

In the question-and-answer session, Larson wouldn't single out
countries of particular concern, although he said that "most of the
transition economies... have relatively fragile and weak democratic
institutions," and so find corruption to be a serious problem. And
some of the major developing countries also find that corruption
"really weakens their efforts to turn things around."

The U.S. government has three important stakes in the problem, Larson
said:

-- It is a foreign policy priority to promote democratization, and
"corruption directly erodes the strength of democratic institutions";

-- Corruption "saps the development potential" of countries, pulling
resources from areas like health and education into less effective
uses; and

-- It has a corrosive effect on global trade: "If the international
trade system is going to be one that inspires confidence, then we have
to make sure that trade is conducted on a clean, open basis."

Fighting bribery and corruption is "very important as part of a policy
of encouraging significant amounts of investment, domestic as well as
foreign investment," he stressed.

Asked if upper level government and business officials resist the
anti-corruption message because they make money from bribes, Larson
responded that "what we have found is that government leaders at the
top see this as such an important issue for the welfare of their
countries that they are not only ready but they are eager to work with
us on these problems."

Following is the State Department transcript:

(begin transcript)

U.S. DEPARTMENT OF STATE
Office of the Spokesman
February 14, 2000

ON-THE-RECORD BRIEFING UNDER SECRETARY FOR ECONOMIC, BUSINESS AND
AGRICULTURAL AFFAIRS ALAN P. LARSON ON U.S. AND INTERNATIONAL
ANTI-CORRUPTION EFFORTS

Washington, D.C.

UNDER SECRETARY LARSON:  Thank you very much.

As indicated, tomorrow is the first anniversary of the entry into
force of the OECD anti-bribery convention and, to mark that occasion,
I would like to give you a very brief progress report on some of the
administration's efforts to combat corruption in international
business transactions.

The fight against corruption is a high priority in our foreign policy.
We believe that corruption undermines democratic accountability and
can be a particularly pernicious phenomenon in developing or
transition states that have weak institutions. We think corruption can
distort and undercut development and it, thirdly, can erode confidence
in the international trading system.

The United States has taken a leading position in fighting overseas
commercial bribery ever since the enactment in 1977 of the Foreign
Corrupt Practices Act. We led the efforts to negotiate the
international convention in the OECD that basically has enshrined the
core principles of the FCPA. Those efforts came to fruition in
December of 1997 when 29 member countries of the OECD, joined by five
non-OECD countries, signed the OECD convention on combating bribery of
foreign public officials in international business transactions.
Secretary Albright attended that signing ceremony and signed on behalf
of the United States.

The United States Senate ratified this convention in 1998 and, in the
same year, Congress passed implementing legislation that slightly
broadened the Foreign Corrupt Practices Act in order to make it
conform to our new obligations under the convention. On February 15 of
last year, the convention entered into force for the United States and
11 other countries that had, by then, ratified the convention. During
the past year, another nine countries have ratified, bringing the
total to 21.

So for the first time in history, there are 21 countries that have
laws that make it a crime for their citizens to bribe a foreign
government official to obtain or retain international business. In
addition to this, there is a rigorous monitoring mechanism, something
we think is the key to effective enforcement, that is up and running.
This is the only anti-corruption treaty in the world that has a
functioning system of peer review. Already the domestic laws of 16
countries have been reviewed. Soon, the participating countries will
begin a new phase of monitoring that will focus on the enforcement of
laws.

In practice, what will make the biggest difference is the day-to-day
activities of businesses themselves who, in the United States, have
introduced very strong internal controls to ensure compliance.
Overall, the progress that has been achieved in the OECD anti-bribery
convention is a tribute to the strong bipartisan support for it in the
United States and also the steadfast backing of the U.S. business
community.

Despite this gratifying progress, we are concerned, as Secretary
Albright stressed in her recent speech in Davos [World Economic Forum]
about lagging implementation. Thirteen signatory states still have not
ratified the convention and they include Argentina, Brazil and Chile,
Denmark, France, Ireland, Italy, Luxembourg, Netherlands, New Zealand,
Poland, Portugal and Switzerland. France is currently considering
legislation but the draft text that we have seen would appear to
grandfather future bribes if companies said that those bribes had been
promised in the past. That would appear to be a big loophole.

Furthermore, some countries that have ratified don't appear to have in
place yet domestic legislation that would be adequate to meet their
obligations under the convention. We are concerned that the United
Kingdom is relying on a 1906 law, for example, that doesn't appear to
cover acts of bribery committed outside the United Kingdom. And
Japan's law appears to lack strong penalties and to suffer from
significant loopholes.

Finally, some signatory states may still allow tax deductions for
bribes paid to foreign governments, foreign government officials, and
we think this is a particularly objectionable practice that entangles
a government's own administration as well as their taxpayers into the
corrosive practice of bribery.

I want to mention very quickly that we are combating corruption on a
number of other fronts as well. Last February about this time, Vice
President Gore hosted the Global Forum for Fighting Corruption here at
the State Department. It was attended by representatives of over 90
countries. We have pushed for a strong anti-corruption initiative in
the stability pact. We have encouraged the IMF and the World Bank to
incorporate anti-corruption principles in their programs. We
negotiated with our partners in this hemisphere an OAS convention
against corruption and we are supporting a business-led transparency
effort in APEC. We participated in the anti-corruption convention in
the Council of Europe and we supported the African countries
participating in the Global Coalition for Africa who have adopted some
25 anti-corruption principles.

This global fight against corruption that is going on in all parts of
the world will only succeed if we can cut off the source of bribes.
The developed countries, therefore, do have to be a part of the
solution, not part of the problem. So we do encourage all the
signatories to the OECD convention that have not already done so to
use the next six months to ratify the convention, to enact effective
domestic implementing legislation, and to end the practice of granting
tax deductions for overseas commercial bribes.

Those are the basic points I wanted to inform you of in the status
report but I would be happy to answer any questions.

Q. Some countries permit deductions.  Do you know how many?

UNDER SECRETARY LARSON: A handful, and we are still trying to get a
little bit more clarity on those that do. In a couple of cases, they
are countries that haven't yet enacted the domestic laws that would
make overseas bribery a criminal offense, and they would intend to end
the practice of tax deductions at the same time.

Q. Sir, where do the Asian countries, especially the south Asian
countries like India, Pakistan, Bangladesh others stand as far as this
report is concerned?

UNDER SECRETARY LARSON: This is a convention that was centered in the
OECD, although it was opened up to five countries that expressed
particular interest in being signatories, and I'll see if I can pull
those out. Argentina, Chile, Brazil, the Czech Republic and Slovakia,
though they're OECD members. The Czech Republic is an OECD member now.
Bulgaria is the other one.

The convention remains open to other signatory countries. The OECD is
also open to a process of cooperation with non-member countries that
could help those countries strengthen their own domestic laws against
bribery in commercial transactions and might help pave the way for
them to become signatories and participants in this convention.

Q. First, just to India, what is the gut feeling about the size of the
problem? How big is it?

UNDER SECRETARY LARSON: By its nature, it is something you can't
gather very precise statistics on. It's my impression, based on the
information available to us, that it is a problem that runs in the
tens of billions of dollars a year and that, beyond the dollars and
cents aspect of it, it is something that is a very pervasive problem
for development and the strengthening of democratic institutions in
many key countries that are right now in the process of trying to
strengthen their democracies and grow their economy. So for that
reason, we regard it as a very important issue.

Q. Could you perhaps name one or two of the countries where it would
be of a particular concern? I am thinking of Ukraine, for example,
where corruption is viewed as endemic, even locally.

UNDER SECRETARY LARSON: I am not -- I am going to shy away from sort
of giving you a priority list of countries or a list of countries
where we think that it's a particular problem because I think you know
as well as I do where some of those countries are and who they are.

What I think I can say is that most of the transition economies are
economies that have relatively fragile and weak democratic
institutions and where this type of problem is a serious problem. And
some of the major developing countries that are trying to undergo
democratic transformations themselves find that they are dealing with
this problem as something that really weakens their efforts to turn
things around. And that is why I say I think for us it is a major
foreign policy priority because we do see it as a global problem and
no part of the world is really immune from it.

Q. What is the U.S. interest?

UNDER SECRETARY LARSON:  What's the U.S. interest?

Q. Why do you care, unless it is a moral position, which sometimes
compels U.S. diplomacy, not all the time. What is it? Are you sort of
trying to level the playing field for American companies or what?
What's your stake in this, the U.S. government?

UNDER SECRETARY LARSON: I think the U.S. government has three
important stakes in this problem. One is that we believe it is a
foreign policy priority for us to promote democratization, and we
think that corruption directly erodes the strength of democratic
institutions, particularly in some of these countries that are trying
the hardest to establish those institutions.

Two, we think that corruption saps the development potential of
countries as well. It causes mis-investment, it pulls resources from
areas like health and education where it could be well spent, into
less effective uses.

And, third, we do think that it has a very corrosive effect on the
international trade system as a whole. Part of that, to be sure, is
that it does tend to create an unlevel playing field, but also a very
uncertain playing field. And we think that if the international trade
system is going to be one that inspires confidence, then we have to
make sure that trade is conducted on a clean, open basis.

Q. (Inaudible) with the -- (inaudible) - Romanian daily newspaper. I'm
wondering if you have something on Romania and if the United States
has any concerns regarding the corruption in Romania, and what do you
think about their fight, the Romanian Government's fight with
corruption?

UNDER SECRETARY LARSON: Well, we think that it's very important that
all of the Stability Pact countries, those from the region of
Southeast Asia as well as those from outside that region that are
trying to work with them, have identified this as an issue that needs
to be addressed in all aspects of the Stability Pact. It's certainly
essential to address it if one is going to hope to attract foreign
direct investment in significant quantities to this region.

But it's also important for the other reasons that I was mentioning
just a moment ago. The importance of it as a way of strengthening --
the importance of an effective anti-corruption program as a way of
strengthening democratic institutions. So we're glad that the
Stability Pact countries have seized this as a major issue.

Q. (Inaudible) - Russian News Agency Tass. Mr. Larson, what is your
assessment of the development in Russia in terms of spreading of
corruption as well as the anti-corruption measures being taken by
Russian authorities? Do you see any progress?

UNDER SECRETARY LARSON: I think it's a very important issue in Russia,
as it is in most other sort of major countries in transition. I think
that one of the more important steps that can be taken is to put more
and more decisions into the marketplace and out of the hands of the
government bureaucracies.

And so toward that end, we think that the structural reform measures
that the government is pursuing, those measures that are part of the
IMF and World Bank programs, are very helpful. They're not primarily
anti-corruption initiatives; their motivation is based elsewhere. But
because of the way that they'll strengthen shareholder rights, improve
the investment climate, advance the privatization of the Russian
economy, they can make a very important contribution to the solution
of this problem.

And I think that further progress in this direction will, in Russia as
in other parts of the world, be very important as part of a policy of
encouraging significant amounts of investment, domestic as well as
foreign investment.

Q. Sir, corruption is mostly the main business of these countries'
upper level government officials and also most of the business. And
how can you expect their cooperation, when you are trying to kill
their income or their business?

UNDER SECRETARY LARSON: Well, what we have found is that government
leaders at the top see this as such an important issue for the welfare
of their countries that they are not only ready but they are eager to
work with us on these problems.

It was interesting, when the first Summit of the Americas was held a
few years ago in Miami, there was some thinking within our
administration that dealing with the issue of corruption was something
that ought to be done but we wondered, you know, would we be seen as
heavy-handed in raising it. As it turned out, it was the other
countries that insisted that it be raised because they saw it as
something that, if they didn't raise it and try to work with partners
in the hemisphere to address it, it would undermine their own
credibility.

And this is why, I think, that 90 countries were prepared to come to
the United States to participate in the conference that the Vice
President sponsored here at the State Department last year. It has
become such an important issue that you can't afford not to address
it. Now, one element of addressing it has to be to address some of the
problems that you identified.

For example, having a well-trained, adequately paid civil service is a
part of an effective anti-corruption strategy, just as is having an
economic policy that, as much as possible, emphasizes competition and
keeps as many decisions as possible in the market rather than have
them be decisions that are made by arbitrary -- by arbitrary decisions
of government officials. So I think, you know, to be sure, you are not
going to solve this problem without addressing what you rightly raise.
But the way to attack it, I think, is to make sure that government
employees, particularly those that have authority over the awards of
contracts and things like that, are well trained, adequately paid, and
certainly well-supervised.

Q. I wonder if I could change the subject for a second? On Friday,
Colombian President Pastrana said he was going to ask the U.S. for
membership in NAFTA. I just wondered if the State Department had heard
from him formally and, if so, what the prospects are for that.

UNDER SECRETARY LARSON: We're here for the corruption issue. He will
take it.

Q. One more (inaudible) in the developing Asia today, one. Now, two,
are you planning to have some kind of resolution through the UN as far
as international bribery cases are concerned in the future? And,
number two, the countries who are not part of this report or have not
signed, how are you going to enforce or look at their aid or relations
will affect the U.S.?

UNDER SECRETARY LARSON: First of all, right now, as I summarized
briefly, there is an impressive range of initiatives at the regional
level going on all over the world and I think because tackling this
issue effectively is a grassroots issue, in part, it is very important
to nurture those regional efforts.

Secondly, there was a United Nations General Assembly resolution on
this subject a few years ago when Secretary Albright was our
Ambassador to the United Nations. That certainly has provided the
foundation for UN interest in this issue. There is, I think, some
discussion that has not yet reached the point of decision about
whether there should be some more formal arrangement or agreement
under UN auspices.

Right now, I think that the most important thing, though, is to make
sure the things that we are putting in place actually work. And that
is why we did take the time to structure this particular briefing
primarily about the OECD instrument, because we want to make sure that
this convention is implemented in an effective way, that it's
something where there is an adequate monitoring process, where
countries actually enact the laws that they're committed to and, more
importantly, that they enforce them.

Q. Can I ask, given the state of many of the countries that you've
mentioned and how badly paid civil servants are and how far those
countries are from actually paying those people realistic amounts of
money, how worried are you that implementing these kinds of
regulations might actually act as a disincentive to investors wanting
to operate in those countries?

UNDER SECRETARY LARSON: I really don't think that is a serious
concern. First of all, we have operated, the United States has
operated under the Foreign Corrupt Practices Act [FPCA] for more than
20 years and we have found that it -- we have been able to invest in
trade around the world and comply with our obligations under this
treaty. So I don't think that -- I think in a way this helps
investment in developing countries.

One of the things our businesses tell us is that, while they had some
difficulty with the FCPA in its early years, as they got more familiar
with it, they were simply able to say when they were in a country and
a bribe was solicited, they could simply say, I can't do that, my
government will prosecute me and put me in jail if I do that. And that
it just drew a line that was very important for them to draw.

Now, I think that as you have the bulk of the major industrial trading
and investing countries adopting these same disciplines, that this
will simply improve the situation because it will take off the table
an issue that really needs to be taken off the table.

Q. Can you update the figure that appeared last June of losses to
American companies? The figure last year was estimated at $24 billion
over five years.

UNDER SECRETARY LARSON: As I said in response to the other question
about this, I think it is very, very hard to come up with precise
numbers about the types of losses that we have had. I am comfortable
in making the guesstimate that the size, the dimension of this
problem, is in the tens of billions of dollars. But it is not
something that lends itself to great specificity and I think it can be
misleading to try to start trying to give to a certain number of
decimal points, you know, the size of the problem.

Q. How could such a figure be arrived at, because how would anyone
know that if the corruption didn't exist an American company would get
the contract? Maybe some other company would get the contract. How do
we know that the American company would be first in line to benefit if
this problem was eased, cleaned up?

UNDER SECRETARY LARSON: Precisely for the reason that you're giving,
that I'm giving a very general number here. It also is the case, of
course, that on many of these major contracts, there aren't that many
bidders. So even if you make an arbitrary assumption that, you know,
United States will get its share or proportionally will win a third of
them or something, you can come up with numbers. But I do think it's a
little bit of a distraction and that's why I have shied away from
giving you a specific number today.

Q. So what kind of sanctions and devices are going to be used in
combating corruptions?

UNDER SECRETARY LARSON: Well, under the Foreign Corrupt Practices Act,
if someone is found to have -- if an American citizen, American
company or American business executive is found to have violated it,
he can be prosecuted criminally, he can be put in jail, the company
can be fined.

So the usual penalties include fines and jail and each country in the
OECD has a somewhat different legal tradition. And because of the
different legal traditions, the precise penalties each country would
impose differ. I mean, the penalties themselves are not set in the
convention. What is required by the convention is that they be
dissuasive, that they be high enough that they would persuade any
reasonable business executive that it's smarter to comply with the law
than to risk the punishment.

Q. The convention is only a year old. Do you have any sort of early
report card on convictions or arrests or legal action based on these
laws?

UNDER SECRETARY LARSON: No. The stage we're at now is the stage of
monitoring the adequacy of the laws themselves, the laws that the 21
countries that have become participants in this convention have put in
place. And the next stage is to really get to the question that you're
raising -- you know, how adequately are the laws being enforced.

One thing that, even though this process is down the road, I would
highlight and stress right now is that it is not -- the right
yardstick is probably not how many prosecutions have there been. I
mean, to be sure, we will hope and expect that there will be
prosecutions, but the reason these laws work is because businesses
don't want to be prosecuted and they bring themselves into compliance.

And, you know, here in the United States we've had prosecutions,
executives have gone to jail, but I believe that the fundamental
reason why the FCPA has made such a big effect is that businesses have
seen the law, they've seen the costs of being found in violation of
the law, and they have therefore implemented extraordinarily rigorous
internal controls to make sure that their employees don't get on the
wrong side of it.

I think the real test of the law will be the extent to which countries
of some of these other countries that have just recently signed onto
these disciplines impose that same sort of discipline on themselves,
the internal controls. If that happens, the bulk of the job will be
done, irrespective of the number of prosecutions. But, you know, we
will have to be watching in the future whether there are prosecutions
and enforcement.

Q. Sir, if I am correct, if the one U.S. company paid the bribery for
to get the international contract and they had a tax relief, are you
planning to change this tax code?

UNDER SECRETARY LARSON: That doesn't exist in the United States.
Again, we have had in the United States for over 20 years a law that
made it a crime for American companies to pay bribes to foreign
government officials in order to get business, and it has not been
permissible for American companies to take tax deductions for bribes
that have been paid. If they had reported that they wanted a tax
deduction, it would have quickly come to the attention of the Justice
Department, and so that hasn't happened here.

In other countries there has been a practice of permitting tax
deductions for bribes paid overseas and we are working very hard to
end that. We have made substantial progress in ending that, and I hope
by the time this year is out we will have ended it completely.

Q. Mr. Larson, you might be familiar with the investigation on Russian
oil company, Tyumen Oil Company. Could you tell us, if I'm not
mistaken, at the end of last year two -- both sides, BP Amoco and
Tyumen Oil Company have narrowed their differences and reached a deal.
Nevertheless, ExImBank is still unable to provide loan guarantee for
Russian company. Was there a specific reason for that? Thank you.

UNDER SECRETARY LARSON: You're referring to the decision that the
Secretary of State made in December to request the Ex-Im Bank, under
the authority of the so-called Chafee Amendment, to delay approval of
two loan guarantees that would have financed the sale of oil field
equipment and refinery equipment to a Russian company.

At the time that that decision was made, it was stressed that it was a
delay designed to give the government time to look into certain
concerns and certain allegations. That process of review has been
going on very intensively since the end of December but I don't have
anything further at this point about where that process stands, except
to say that the review is going on, going on very intensively. And it
was -- again, the decision itself was seen as a delay to look into
some things rather than a denial.

Thank you.

(end transcript)

(Distributed by the Office of International Programs, U.S. Department
of State. Web site: usinfo.state.gov)