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Sweating The Small Stuff

Public corruption robs people of clean water, electricity, food supplies, a safe place to live and work, decent health care and, above all, opportunities to make things better. Graft, in other words, isn't a victimless crime, and whatever helps dispel the false notion that it is, is welcome in this space. Which brings us to . . . the United Nations. We haven't spent much time praising that institution. In fact, we've never done it. But here goes.

The U.N's just-published Asia Pacific Human Development Report, Tackling Corruption, Transforming Lives, tells the story of public corruption in Asia. So what's new? This time the story is told not from the perspective of the bribe payer or even the bribe taker, but from the victims themselves. The report isn't easy to read, not because of dry "technical" language or fuzzy jargon. There's none of that. In fact, the language is surprisingly simple. No, it's hard to read because the truth about public corruption isn't fun to look at.

For example, the 248-page report describes a survey from Bangladesh, India, Nepal, Pakistan and Sri Lanka. It found that health workers often demanded bribes for admission to the hospital, to provide a bed, or to give subsidized medications. According to the report,

Among people using hospitals in small cities the proportion paying bribes rose to almost 90 per cent. In maternity hospitals mothers even had to bribe the nurses in order to see their babies. Within some countries in South-East Asia, the proportion of people paying bribes tends to be lower perhaps because more people get their treatment in the private sector.

"Invisible taxes" are everywhere in the poorest countries. In Bangladesh, a survey of 3,000 households showed that 97% that bought land had to pay bribes to register it, 83% had to pay bribes for land surveys, and 40% of the households that received land had to pay bribes.

The most common victims? Poor people. Police corruption, for example, hits the bottom rung the hardest because they lack the influence needed to defend themselves. Amounts extorted by police can be relatively small but may be a big part of the victims' income ? as well as creating "an atmosphere of fear and apprehension." Police sometimes harass whole neighborhoods, the report says. In a riverside slum settlement in Northern India poor families described how police were fleecing them:

They have made our lives miserable. We do not know when we will be thrown out of our homes. They land up any time and demand money. They threaten us that if we do not pay, they would throw us out of our homes. . . . Last week my clothes were torn apart after my husband could not pay the money demanded. We were allowed to go free only after we sold our rickshaw and paid the money.

The U.N. reporters note that most studies about public corruption don't include the impact on the poor. Why not? Probably because the amounts involved are relatively small, it's hard to measure what's happening, and also because the victims have little chance to complain. But the U.N., to its credit, went out and found people willing to talk.

In Cambodia, for example, a rural family owned a small boat but not the land where their house was located. The wife reported that sometimes the police came when her husband was out fishing. Although they did explain why they were visiting her, she sometimes felt forced to give them money out of fear of losing the boat.

In Indonesia, police often demand bribes from truck drivers. One study involved ride-alongs with truckers on long distance journeys that crossed some of the country's infamous police "checkpoints." Bribe expenses at the checkpoints constituted around 13% of the transportation cost which, though less than the fuel cost, amounted to more than wages. A report from Bangladesh found that a cattle trader had to pay extortion money at eight different places along the way to the market, both to the police and organized criminals - which added as much as 20% to the selling price.

Who would knowingly support that sort of exploitation? It's unthinkable, of course. But here's the problem. When well-known and respected multinational companies come to town and start greasing the palms of the local cops, health workers, land office-officials and postal workers, what's the message? That the rich and powerful visitors think petty bribery is OK? That it's some kind of global best practice? If the brand-name companies don't reject public corruption but instead join in with their so-called facilitating payments, how can local citizens, especially the poor and powerless, ever hope to win against their home-town sleaze?

Fortunately, a lot of compliance-minded companies now ban facilitating payments. That's great news, even if their reason for doing so is purely self interest. They think facilitating payments are hard to control and account for; the payments might violate local laws and have to be publicly disclosed back home; and small bribes overseas might promote a culture of corruption and spoil the company's effective compliance program. So in the end, the risks of facilitating payments aren't worth the rewards. Those are good reasons, and all true. But the most important reason to abandon facilitating payments, even if the Foreign Corrupt Practices Act allows them, is because public corruption, even the petty stuff, always hurts someone, if only by perpetuating the practice.

It's a dangerous idea that small-time bribery is just "cultural," that it's business-as-usual in some places and doesn't do any real harm. That sort of talk comes from business people and professionals who wouldn't dream of breaking a law back home. But on the road they turn into serial bribers -- under the banner of facilitating payments. It's true, after all, that the Foreign Corrupt Practices Act allows bribes for routine governmental action -- permits and licenses, visas and work orders, police protection, mail pick-up and inspections, phone service, power and water supply, cargo loading and unloading, protecting goods from spoilage, or any "actions of a similar nature." Bribes for those purposes, the FCPA says, are OK. But should any corporate citizen become a party to bribery anywhere, whether or not the FCPA allows it?

That question goes beyond legal compliance. It's part of the "soft" subject of ethics, which is never easy to talk about in the business world. Ethics can't be measured, and measuring things -- costs, profits, losses -- is what business is mostly about. That's why it's important sometimes to hear what those outside the business world are saying. The U.N.'s Asia Pacific Human Development Report is full of those voices, and they're worth listening to.

Full post as published by The FCPA Blog on June 15, 2008 (boomark / email).