Transparency International, a not-for-profit organization, was founded in 1993 by international financiers and businessmen committed to the proposition that corruption should be eradicated from the world marketplace. During its five years of existence, TI has transformed that notion from the marginal to a priority of the World Bank and the Organization for Economic Cooperation and Development (OECD), consisting of 29 developed countries. TI has devised what it calls its Integrity Pact, a concrete program designed to exclude corruption from procurement contracts involving multinational companies and the governments of developing countries. Integrity Pacts have been implemented so far in three Latin American countries. Michael Wiehen, the chairman of the Germany chapter of TI, and Carel Mohn, the chief information offficer at TI's international secretariat in Berlin, explain how they work.

It's a nightmare for every company, particularly if it is among the more competitive ones in the market. The preselection phase in the bidding process of a public procurement exercise is past you, contract negotiations with the government and the financing institutions have been successfully completed. All of a sudden unforeseen problems are coming to the surface. Junior government officials begin to question details of the contract and demand renegotiating technicalities. Licenses and permits you need to apply for to start implementing the contract -- mere formalities as the government representatives affirmed just before the contract was signed -- are suddenly stuck in a seemingly impenetrable bureaucratic jungle. And, quite to your surprise, you find that even the more senior-ranking government officials are beginning to question the validity of the project. After having invested millions of dollars and thousands of staff hours on such a major project, everything seems to be in shambles. And the solution to saving the project from suddenly turning foul also gradually edges to the surface -- extra payments or, simply, bribery.

When bidding for major projects, companies usually have a strong interest to avoid just that. A company that can rely on the quality of its products simply has no interest in entering into a field where there is no reliability, no prospects to enforce contracts, no certainty as to the behavior of clients, competitors or counterparts on the government side. In markets distorted by corruption, companies are facing a prisoner's dilemma: while it may be profitable for all competitors to put an end to corruption, no one wants to take the first move for fear of losing the contract to a less scrupulous competitor.

The OECD Convention that is likely to enter into force in January next year wants to change that situation by creating a level playing field for everyone in the market and by giving the credible assurance that bribing an office holder abroad will be prosecuted as a crime in all OECD countries. While this international framework can be regarded as a major breakthrough and as a victory for those who have long been calling for a stop to the reckless business of exporting bribery from the North to the South, change will not come overnight. It will take time before foreign corruption will be prosecuted with the same vigor and consistency all over the industrialized countries. And in the immediate and mid-term future, the OECD Convention will only partially address the ambiguity and uncertainty that exists in those markets that have traditionally been under the dark clouds of corrupt practices.

In that situation, a case-by-case approach in tackling corruption may prove to be more effective and will certainly give companies greater assurance that they can reap in the profits of freedom from corruption without taking the risk of being the one to make the first move.

TI'S INTEGRITY PACT

The TI Integrity Pact (TI-IP) intends to accomplish two objectives:

to enable companies to abstain from bribing by providing assurances to them that their competitors will also refrain from bribing, and that government procurement agencies will undertake to prevent any form of corruption, including extortion and to follow transparent procedures;

to enable governments to reduce the high cost and the detrimental impact of corruption on public procurement.

The Integrity Pact would function as follows: a government, when inviting contractors or suppliers of goods and services to tender for a specific contract, informs the potential bidders that their tender offer must contain a commitment, signed personally by the bidder's Chief Executive Officer (CEO), not to offer or pay any bribes in connection with this contract. This covers, of course, all stages of the procurement process as well as the execution phase. The government, on its part, will commit itself to prevent price-fixing and the acceptance of bribes by its officials, and to follow transparent procurement rules. Legally speaking, these commitments are nothing other than a commitment to respect and invoke the existing laws of the country. It is expected that the explicit commitment and the mode of operation established by it can make a significant difference in the political and business reality.

The sanctions provided for violations, and the monitoring system put in place, may go well beyond the existing legal system. Bidders who violate their commitment not to bribe will be subject to significant sanctions, such as denial or loss of contract, liability for damages (to the government and the competing bidders), and forfeiture of the bid security. The government could also debar the offender from all government business for an appropriate period of time. By empowering unsuccessful bidders, who have evidence of corruption by their competitors or the principal, to enforce sanctions themselves (through the courts or by international arbitration) their confidence in the integrity of the process as a whole will be increased.

Because a bidding company acts through many employees and agents, the chief executive officer's commitment should (not least for the CEO's own protection) be implemented through a compliance program which assures that all employees and agents will observe the no-bribery commitment. Where the company already has a written anti-bribery policy in effect, it can furnish a copy of that policy together with the compliance program implementing that policy. Where a company does not have such a policy, or does not have a written compliance program, it can furnish a copy of the compliance program established for the particular contract.

One key lies in transparency relating to payments to agents and other third parties in connection with the contract. There are, of course, good and valid reasons why agents should be engaged to perform legitimate services. However, agents' commissions are a traditional avenue for the concealing of bribes. The Integrity Pact therefore envisages a requirement that all past and intended future payments to third parties be disclosed at the bidding stage, and that they be formally recorded and reported during the execution stage by the successful bidder, with appropriate certification by the CEO.

A second feature of the Integrity Pact is the involvement of CEOs personally or through other appropriate senior managers. The procedure requires them personally to certify amounts of payments to third parties. They will be required to be personally involved, so they will not be able to disclaim knowledge of malpractice as is often the case. This requirement is bolstered by the compliance provisions which the successful bidder normally must have in place.

MOVING FORWARD WITH IMPLEMENTATION

While TI has discussed this approach in a number of countries from its very inception in early 1993, it was introduced only in a few rather different cases in Latin America: in a refinery rehabilitation project in Ecuador (1994), in a modified version in the privatization of telecommunications in Panama (1996) and in procurement by the provincial government of Mendoza in Argentina (1997); other initiatives are in varying stages of implementation.

While the Integrity Pact concept has the backing of major international financing institutions -- World Bank President James Wolfensohn has endorsed it as have representatives of the regional development banks -- Transparency International today faces the challenge of proving that the concept can be applied on a broader basis and that it has matured beyond the pilot project phase. Numerous companies -- many of them playing in the top league of their sectors -- have voiced their great interest in taking just the project-oriented approach that the Integrity Pact concept is propagating. They have seen too many government-led anti-corruption campaigns come and go without achieving substantive change. Civil society also stands ready to work on concrete Integrity Pact projects, perhaps in the form of a National Chapter of TI, that would monitor the bid evaluation and the selection of the successful bidder. With the support of the private sector, civil society and the financing institutions, it is now upon governments to demonstrate that they are willing to handle things differently -- at least in individual large-scale projects.