War declared on corruption

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MINISTERS from the world's main trading nations are expected to agree this week to take tough, collective action to stop Western companies paying bribes to win contracts in developing countries.

At a meeting in Paris on Thursday and Friday the 25 members of the Organisation for Economic Co-operation and Development - including Britain, France, Germany, the United States and Japan - are due to ratify the first multilateral agreement to tackle bribery and corruption in international trade.

After a four-year inquiry, an OECD 'working party on illicit payments' drew up a list of recommendations which were approved by the OECD council last month. The recommendations call on member governments to take effective measures to deter, prevent and combat bribery of foreign government officials.

Suggested measures include making the payment of bribes overseas illegal and stopping such payments being considered a legitimate business expense and therefore tax-deductible. The recommendations will be reviewed within three years and tougher, mandatory sanctions could follow.

Each country will be expected to review its laws and regulations relating to public subsidies, licences, government procurement contracts, company and business accounting and banking.

Most countries have laws against bribery by home companies of their own officials, but only the United States has made the payment of bribes overseas illegal. The scale of the problem is not known, but

a Swiss banking source is

quoted as estimating that

more than USdollars 20bn ( pounds 15bn) is

held in Swiss bank accounts for

leaders of African states alone.

The OECD initiative was encouraged by a new pressure group formed last year, Transparency International, which has 'chapters' in Germany, Britain, the United States and Ecuador. Chaired by Peter Eigen, a former World Bank official, the group's members include economists, businessmen and former aid agency officials who have had direct experience in dealing with developing countries.

They argue that bribery and corrupt practices distort decision-making. Contracts may be over-priced and therefore the country over-charged, as the contract is inflated by as much as 20 per cent to accommodate the bribe. Bribes may lead to the selection of incompetent or unscrupulous suppliers and deliberate cost-cutting. The availability of 'back-handers' may also encourage countries to buy goods and services that are unsuitable for or surplus to their needs.

The OECD initiative is timely in Britain, where a House of Commons select committee is investigating the affair of the Pergau dam in Malaysia, in which it has been alleged that pounds 234m of development aid was misapplied to secure contracts for British firms to build something that was unsuitable for the country's needs. The project has been criticised by a senior official from the Overseas Development Administration as an abuse of the aid system.

Another recent case in the UK illustrates the unwillingness of Western countries to penalise companies that pay bribes. Last month Gordon Foxley, a former head of ammunitions procurement at the Ministry of Defence, was jailed for four years for accepting bribes totalling at least pounds 1.3m from three European companies to award them contracts to supply ammunition.