A slap on the backhanders: Trading nations are finally trying to crack down on official bribery, says Rosie Waterhouse

THE world's main exporters will this week be asked to approve measures to stop Western companies bribing foreign government officials to win contracts in developing countries. After a four- year inquiry by a 'working group on illicit payments', the 24 members of the Organisation for Economic Co- operation and Development (OECD) are to adopt a voluntary code of conduct.

Options that may be adopted include: making the payment of bribes illegal and preventing them being tax deductible; invalidating the bribe contract; denying home government contracts to those making illicit payments, and developing international co-operation so that any OECD government would be able to pursue a case of bribery successfully.

Last month the working group rejected a tougher option proposed by the United States, that would have made all anti-bribery measures compulsory. A softer version was proposed by Britain and Japan. The voluntary code was the agreed compromise, and will be reviewed by the OECD council on Thursday. If approved, it will be submitted for ratification by OECD finance ministers in June.

The OECD council could still, in theory, support the tougher, mandatory course of action preferred by the US. But the very fact that all 24 OECD countries are prepared to take some form of co-ordinated action suggests they now consider corruption in international trade to be a serious problem that needs to be tackled. This is a significant change in attitude.

Hitherto Western governments have turned a blind eye, justifying the payment of 'commissions' in the interests of securing jobs and on the grounds that 'if we don't pay, someone else will'. Many will none the less find it astonishing that all OECD countries (except the US) seem to sanction such payments by regarding them as legitimate business expenses and therefore tax deductible.

Some cynics argue that backhanders and kickbacks are an inevitable part of doing business in certain parts of the world. Certainly, previous official efforts to 'do something' have failed. In the Seventies negotiations within the United Nations for a multilateral convention on illicit payments were abandoned after three years' work. In 1976 the OECD agreed a code of conduct for multinational enterprises, but only the United States took firm steps, introducing the Foreign and Corrupt Practices Act of 1977, which banned companies from paying bribes. All OECD countries have some legislation against bribery by their own national companies and officials but the US is the only one to address actions committed by its citizens abroad. Now the climate appears to have changed and the OECD is ready to agree a joint strategy.

The OECD initiative - and Britain's initially lukewarm response - come at an awkward time for the Government as the House of Commons Foreign Affairs Committee investigates the Pergau dam affair, in which it has been alleged that British development aid was misapplied to help UK firms to win contracts.

Bribery and corruption in international trade have until recently been a taboo topic, with the occasional court case providing a glimpse into that secretive and lucrative world. Now, however, more people with direct experience are going public to persuade governments and companies of the damage that such practices cause.

A fascinating insight into the way bribery works - and powerful economic arguments against it - are contained in a 60-page booklet written by George Moody- Stuart, a British businessman who has worked for 30 years in the sugar industry in East Africa, the South Pacific and the Caribbean. Called Grand Corruption in Third World Development, the pamphlet has been circulating discreetly among selected company directors and politicians, including Baroness Chalker, the Overseas Development Minister, since it was published privately last year.

Now a semi-retired consultant no longer dependent on securing overseas contracts to earn a living, Mr Moody-Stuart decided to expose what he calls the 'invasive cancer' of grand corruption. This he defines as 'the abuse of public power by heads of state, ministers and senior officials for private pecuniary gain'. Such practices, he says, became the rule rather than the exception during the Eighties.

His main objection is that corrupt practices distort decision-making. Contracts may be over-priced, and therefore the country over-charged, as the contract value is inflated by as much as 20 per cent. As an alternative to increasing his price, a supplier might reduce the quality of his work or goods and expect to be immune from criticism for poor quality or late delivery.

Bribes may lead to the selection of incompetent or unscrupulous suppliers and deliberate corner-cutting. Perhaps most damaging of all, the availability of bribes may encourage countries to buy purchase goods and services that are unsuitable for, or even surplus to, their needs.

Some companies, and even politicians, defend the payment of bribes in developing countries, saying that the money 'trickles down' to needier members of the population. But, as Mr Moody-Stuart point out, most of it probably ends up in a Swiss bank. One Swiss banking source estimates that more than dollars 20bn ( pounds 13bn) is held in the country's bank accounts for leaders from African states alone.

Since writing his book, Mr Moody-Stuart has become the UK chairman of a new campaign group called Transparency International, with 'chapters' in Germany, Britain and the United States, whose long-term objectives are to see anti-bribery measures adopted by the OECD, the European Union and the UN and for all trading countries to pass legislation similar to the US Foreign and Corrupt Practices Act.

What emerged during the Pergau dam inquiry should persuade the Government it is time to take effective and concrete action to clean up trade between developed and developing countries. The OECD initiative is a good start. Even if the UK cannot be persuaded to follow the US example, the Government should at the very least stop sending out signals that such payments are acceptable and close the loophole that allows them to be tax deductible.

(Photograph omitted)