Bribery and Extortion PRAEGER SECURITY INTERNATIONAL ADVISORY BOARD BOARD COCHAIRS Loch K. Johnson, Regents Professor of Public and International Affairs, School of Public and International Affairs, University of Georgia (U.S.A.) Paul Wilkinson, Professor of International Relations and Chairman of the Advisory Board, Centre for the Study of Terrorism and Political Violence, University of St. Andrews (U.K.) MEMBERS Anthony H. Cordesman, Arleigh A. Burke Chair in Strategy, Center for Strategic and International Studies (U.S.A.) Thérèse Delpech, Director of Strategic Affairs, Atomic Energy Commission, and Senior Research Fellow, CERI (Fondation Nationale des Sciences Politiques), Paris (France) Sir Michael Howard, former Chichele Professor of the History of War and Regis Professor of Modern History, Oxford University, and Robert A. Lovett Professor of Military and Naval History, Yale University (U.K.) Lieutenant General Claudia J. Kennedy, USA (Ret.), former Deputy Chief of Staff for Intelligence, Department of the Army (U.S.A.) Paul M. Kennedy, J. Richardson Dilworth Professor of History and Director, International Security Studies, Yale University (U.S.A.) Robert J. O’Neill, former Chichele Professor of the History of War, All Souls College, Oxford University (Australia) Shibley Telhami, Anwar Sadat Chair for Peace and Development, Department of Government and Politics, University of Maryland (U.S.A.) Fareed Zakaria, Editor, Newsweek International (U.S.A.) Bribery and Extortion Undermining Business, Governments, and Security Alexandra Addison Wrage PRAEGER SECURITY INTERNATIONAL Westport, Connecticut • London Library of Congress Cataloging-in-Publication Data Wrage, Alexandra Addison, 1964- Bribery and extortion: undermining business, governments, and security/ Alexandra Addison Wrage. p. cm. Includes bibliographical references and index. ISBN 978-0-275-99649-9 (alk. paper) 1. Bribery. 2. Extortion. 3. Corruption. 4. International business enterprises—Corrupt practices. I. Title. HV6301.W73 2007 364.1’323—dc22 2007020610 British Library Cataloguing in Publication Data is available. Copyright © 2007 by Alexandra Addison Wrage All rights reserved. No portion of this book may be reproduced, by any process or technique, without the express written consent of the publisher. Library of Congress Catalog Card Number: 2007020610 ISBN-13: 978-0-275-99649-9 ISBN-10: 0-275-99649-2 First published in 2007 Praeger Security International, 88 Post Road West, Westport, CT 06881 An imprint of Greenwood Publishing Group, Inc. www.praeger.com Printed in the United States of America The paper used in this book complies with the Permanent Paper Standard issued by the National Information Standards Organization (Z39.48-1984). 10 9 8 7 6 5 4 3 2 1 To my husband, Stephen. Nihil nobis inexsuperabile. Contents Preface ix Introduction Thieves, Thugs, and Kleptocrats 1 Chapter 1 Dimensions of Bribery 8 Chapter 2 The High Cost of Small Bribes 19 Chapter 3 Gifts, Favors, and Hospitality 36 Chapter 4 Undermining Confi dence in Government 49 Chapter 5 Distorting Business 69 Chapter 6 International Embarrassment 85 Chapter 7 Preying on the Public 95 Chapter 8 Mounting Impatience 102 Conclusion Modest Optimism 111 Notes 131 Selected Bibliography 157 Index 159 Preface This book will take a practical and applied approach to its subject. Although there are several very good academic studies on the history and economic theory of bribery and even some ambitious attempts to isolate and measure its impact, there are no accessible reports on the current practice of bribery. There is no one book to which business- people, employees of nongovernmental organizations, editorial writers, government offi cials, undergraduates, journalists, and others with a need to know about the mechanics of bribery can turn. This volume will survey the current practice of bribery. To the extent that it has a message, it is to show that bribery is not a victimless, acceptable, white collar crime whose presence can be adapted to and dealt with lightly. Bribery at all levels, from supposedly “petty” extor- tion to its grandest forms, is a tentacled crime whose damaging reach is pervasive and nearly incalculable. For over a dozen years my work has put me in positions where I could observe both bribe-seekers and bribe-payers at close range. Before I studied law at Kings College, Cambridge University, I spent almost two years traveling in China, Southeast Asia, India, and the Middle East. While participating in various volunteer projects, I heard about offi - cials selling their authority to the highest bidder and lost any initial illusions I held about their purely humanitarian motives. When I was injured in China and again when I was sick in India, I saw how under- paid doctors enhanced their incomes by extorting payments from family members of the ill. A few years after leaving Cambridge, I represented a large telecommunications company in the Middle East. While work- ing out of Damascus and commuting across the Bekaa Valley to Beirut, x Preface I received regular lessons in the ways corrupt offi cials at all levels set up obstacles, from small road blocks to major deal-breaking demands, in order to extract whatever money they could. For four years after that, I was international counsel for a major American aerospace and defense company. In that role, I observed the ways that large corporations deal with their agents abroad and saw how such companies must steer their way through the thickets of the law in countries like Kuwait where one is legally required to work through, and pay handsomely, a local agent, typically one who is related to the ruling family. Although already interested in anti-bribery compliance, the attacks of September 11 prompted many of us in the fi eld of compliance to question the role that international bribery plays in terrorism more generally. We began to question how countries can keep their citizens safe in the face of corrupt military and police, false documentation, and smuggled munitions, all of which can be bought for so little in so many countries. These refl ections prompted me to look beyond my role as in-house counsel for a multinational corporation. At an anti-bribery conference in Prague in October 2001, I met with my counterparts from other mul- tinational companies and we developed the idea of a nonprofi t organi- zation that would support companies in their efforts to comply with the law and to deter the demands of bribe-seekers. That organization, TRACE International, Inc. (TRACE), took shape quickly thereafter. TRACE was established as a membership organization with multina- tional corporations paying an annual fee. It has prospered in the past fi ve years and now has a substantial philanthropic educational and research arm to complement its original business services branch. My work with TRACE—full-time since 2003—has given me the opportu- nity to focus exclusively on international bribery, travel and consult widely, provide training in more than fi fty countries, and meet with representatives of the governments in Nigeria, India, the Philippines, Yemen, Equatorial Guinea, and elsewhere. I have worked closely with over a hundred companies and several thousand of their representa- tives overseas. This has been a fascinating seat from which to gather information about the practice of bribery. Many of the anecdotes recounted in this book were told to me per- sonally. Many others were reported in the media. Of those that were told to me personally, I cannot be certain they are true, but I can say that they were all told to me by people I believe to be credible and by individuals who had nothing to gain from misleading me. What was startling about the research for this book was just how many stories I had to choose from. At anti-bribery workshops in Asia, Africa, and Latin America, as well as those in Europe and North America, even before people learned I was writing a book, they wanted to tell their stories. Perhaps they were willing to talk because bribe-tainted transactions Preface xi are furtive and isolating and there can be some comfort in passing such stories on. Perhaps it is because people feel they witnessed something remarkable or amusing and they want to share it in a “can you believe it” spirit. Or perhaps it is because they were angered and wanted what they saw more widely known in the hope that sunlight will kill off the mold of corruption. For whatever reason, people passed on their experi- ences and their behavior has made one thing clear—the days of openly bragging about illicit deals are over. I have tried to spare the reader any sermons. In fact, I have tried to introduce a little levity in an otherwise grim topic by highlight- ing some of the most absurd bribery schemes. I know well that this topic is serious and that its impact on people can be devastating, but I hope that I will be forgiven for keeping the tone of this book relatively light-hearted in spite of the subject matter. If I have gone too far for some tastes, I hope readers will still consider the facts and disregard the tone. Furthermore, I have restricted myself largely to a discussion of public sector (government) bribery, avoiding the wider topic of private sector bribery. I depart from many in the anti-bribery fi eld on this point, par- ticularly with my colleagues in Europe. To be sure, private-to-private bribery is wrong and should be punished. Employees who make deci- sions about suppliers based on the suppliers’ propensity to provide kickbacks should be fi red. Executives who sell their corporate decision- making integrity should be terminated and board members removed, but anti-bribery enforcement resources are scarce and many companies have sanctions for abuses of this kind. International anti-bribery laws, on the other hand, serve to protect the interests of citizens who might not otherwise have any recourse against self-enriching politicians and bureaucrats.