Businesses Exit Pakistan over Corruption Risk

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pakistan business

In a worrying sign for Pakistan’s ability to attract and maintain foreign investment, two prominent manufacturers have announced recently that they are pulling out of the market, citing supply chain concerns including corruption.

“Investors are the backbone of any country. Protection of their interests is an important duty of the market regulators,” noted Shariq Zaidi, Partner Assurance, Ernst & Young Pakistan, in commenting on the need for both government and business to improve the business environment.

Citing corruption issues in its supply chain, the Walt Disney Company pulled approximately $ 200 million worth of yearly textile production from Pakistan and banned it from the list of approved supplier countries, along with other “high-risk” countries such as Bangladesh, Ecuador, Venezuela, and Belarus. Speaking to CNN, Bob Chapek, President of Disney Consumer Products commented, “After much thought and discussion, we felt this was the most responsible way to manage the challenges associated with our supply chain.” The second firm, the Canadian menswear label and retailer Kanati Co., came to a similar decision citing many of the same factors as Disney, although the firm’s co-founder downplayed corruption as a factor in a subsequent interview.

The two firms’ action are a wake-up call, both for those representing multi-nationals’ interests in Pakistan and those Pakistani firms in the multi-nationals’ value chains, according to the Contracting & Procurement Manager at Shell Pakistan, Mehnaz J. Mohajir. “As people who work in companies that are either operating units of multinational companies or suppliers of foreign companies, we should now accept and take immediate actions that improve our working conditions. Among many remedial steps that come to one’s mind, improving our adherence to international standards of ethics and compliance ought to be definitely be on high priority,” said Mohajir. He is also a member of CIPE Pakistan’s Compliance Advisory Committee, which helps guide CIPE’s efforts to improve the country’s culture of anti-corruption compliance. Read more…

Perceptions of Chinese Firms in Africa Tainted by Corruption and Other Abuses

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Nova Cidade de Kilamba, a housing development outside Luanda, Uganda, built by China International Trust and Investment Corporation.

Nova Cidade de Kilamba, a housing development outside Luanda, Uganda, built by China International Trust and Investment Corporation.

The Chinese government’s crackdown on corruption is more than a passing trend, as evidenced by over $700 million in fines levied on foreign firms in 2014 alone. But enforcement has been largely contained to domestic affairs, despite a law on the books forbidding Chinese companies from engaging in bribery abroad.

If Chinese prosecutors were interested in these abuses, one obvious place to start work would be in Africa. A survey released by the Ethics Institute of South Africa, “Africans’ perception of Chinese Business in Africa,” found that 61 percent of respondents report that Chinese companies engage in bribery and other illegal activities in their countries. Read more…

Making Corruption Right: What Do FCPA Violators Owe Their Victims?

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The FCPA Map shows where bribes were paid. Should the citizens of those countries be treated as victims?

The FCPA Map shows where bribes were paid. Should citizens and business in those countries be treated as victims?

Should the U.S. Foreign Corrupt Practices Act (FCPA) be used as a vehicle for restorative justice?

The FCPA is currently enforced with the aim of deterring the bribery of foreign officials. The 1977 law prescribes civil and criminal liability for individuals and entities, with the potential for criminal fines of up to $25 million and imprisonment of individuals for up to 20 years. Those fines go into U.S. government coffers, even when — as is often the case — taxpayers and citizens of an emerging market country are the ones harmed by the bribe.

The theory of restorative justice, on the other hand, seeks to repair the harm caused by criminal acts and heal the community by bringing together victims and perpetrators to diagnose the causes of criminal behavior and determine the appropriate punishment. It aims to offer justice to victims while reintegrating the perpetrator into the community. If this concept were to be applied in an FCPA context, how should we define victims and perpetrators? Andy Brady Spalding of the University of Richmond Law School has an answer. He labels citizens of the host community where bribery occurred as victims and companies that engage in bribery as perpetrators.

Spalding is proposing an alternative approach to FCPA enforcement based on restorative justice principles. In his proposal, the accused multinational corporation (MNC) and Department of Justice (DOJ) would enter into a deferred prosecution agreement (DPA) in which the DOJ would grant a downward departure in fines in return for funding a series of community service projects designed to help the particular local communities where the bribes were made. Read more…

Can Ukraine Stamp Out its Corruption Culture?

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Ukraine’s “Euromaidan” protests were driven by activists fed up with corruption. Can the new government turn things around?

When it comes to opportunity for anti-corruption reform on a massive scale, few countries have ever been as ripe for change as Ukraine today. Western countries and the International Monetary Fund are pushing hard for transparency and clean government. They enjoy unprecedented leverage over Ukraine’s political and economic elites, who need billions in loans to stave off economic ruin. Ukraine’s populace, which took to the streets a year ago to oust a president reviled for his flamboyant corruption, is maddened at the lack of a single, high-profile corruption prosecution since then. Investors, once attracted to Ukraine by a highly educated workforce, cheap industrial assets, and some of the world’s most fertile farmland, have made it clear that corruption is a deal breaker.

Freshly elected Ukrainian leaders committed to reform and European integration are taking seemingly drastic steps on the anti-corruption front. In October, they passed an impressive package of laws that provide the framework to investigate, prosecute and imprison wrongdoers. Just as important, the new laws require the training and monitoring of the tens of thousands of public servants – from traffic cops to school principals to MPs – who collectively represent the “demand side” of Ukraine’s corruption equation.

To implement these new laws and flesh out the details, Ukraine’s elected leaders are turning to technocrats from countries counted as anti-corruption success stories – mostly Georgia and Lithuania. They are laboring away this winter in various ministries and in the Presidential Administration, trying to figure out how to train and empower the men and women who, in the face of a decades-old corruption culture and vastly outnumbered by colleagues benefiting from the status quo, will be the shock troops of anti-corruption reform. Taken together, these are impressive, ambitious moves in a country of 45 million, by far the largest state in the post-Soviet space to attempt such a housecleaning.

All this was on display last week during a fact-finding mission by CIPE’s lead anti-corruption expert in Ukraine, Drago Kos, who also serves as the chairman of the Working Group on Bribery of the Organisation of Economic Cooperation and Development. Kos, a plainspoken man who began his career in the Slovenian police force, spent a week in Kyiv, building rapport and sharing opinions with the Ukrainians at the forefront of the anti-corruption effort. Read more…

Compliance and Competitiveness in Pakistan: Interview with SAMI Pharmaceuticals Director Junaid Shamim

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The word “compliance” in Pakistan took on a whole new meaning in 2014 when key Pakistani exports won tariff-free access to the massive European Union market. That new status, known as the Generalised System of Preferences plus (GSP+), is linked to the implementation of 27 international conventions including labor rights, sustainable development, and good governance. In the sophisticated Pakistani pharmaceutical market, some local firms are increasingly looking to export not only to the EU but other highly regulated markets like the U.S. One such firm is SAMI Pharmaceuticals (Pvt) Limited, based in Karachi, where CIPE’s Frank Brown interviewed Director Junaid Shamim. Read more…

Stakeholder Trust: A Proposal for a Global Business Ethics Principle

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dowden-nicholsThis article originally appeared on the Russian International Affairs Council blog.

By Patricia E. Dowden and Philip M. Nichols

What standards should businesses observe in their own countries, or abroad? Businesses now have resources and influence that rival or surpass those of governments and certainly of ordinary people.[1] The choices businesses make can profoundly influence the lives of every person on the planet. Businesses, governments, and people now recognize that businesses must do much more than merely obey the law. Yet discerning and agreeing on globally appropriate rules for business behavior has been a formidable and contentious discussion among business leaders and academics.

While acknowledging all of the contentiousness, we now offer a modest proposal for a unifying global business ethics principle:

A basic duty of every organization is to earn stakeholder trust.

This principle is meant to replace a more familiar but flawed imperative: that the basic duty of each business leader is to “maximize shareholder value.” [2] Such a duty has never been explicitly written into corporate law, yet is often practiced by CEOs as a way of avoiding dissatisfied shareholders and being replaced by a similarly dissatisfied Board of Directors. But a single-minded focus on profitability – especially very short-term profitability – has serious limitations and risks to the ongoing enterprise; we will explain why earning and maintaining stakeholder trust – including shareholders — can not only serve businesses’ bottom line over time, but also make the market economies where they operate much more sustainable. Read more…

CIPE Executive Director and Partners Announced in Ethisphere Business Ethics Ranking

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2014 most influential

Ethics is an increasingly important component of doing business for both small and medium sized enterprises to multinational corporations in today’s globalized world. The Center for International Private Enterprise (CIPE) has long been an active advocate for better business practices with its focus on anti-corruption initiatives and promoting corporate social responsibility.

Ethisphere Institute, a global leader in defining and advancing the standards of ethical business practices, recognized CIPE leaders and partners for their contributions to advancing business ethics. Ethisphere magazine listed CIPE’s Executive Director John D. Sullivan and Michael Hershman, member of CIPE’s board of directors, as the top 100 most influential individuals in business ethics in 2014. Mr. Hershman is an internationally recognized expert on matters relating to transparency, accountability, governance, litigation, and security. Dr. Sullivan is the author of numerous publications on the transition to democracy, corporate governance, anti-corruption, and market-oriented democratic development. Under his leadership, CIPE developed a number of innovative approaches that link democratic development to market reforms in the areas of combating corruption, promoting corporate governance, building the capacity of business associations, supporting the informal sector, and assisting women and youth entrepreneurs.  Read More...

Q & A: OECD Working Group on Bribery Chair Drago Kos Discusses the Recent Study of Global Corporate Corruption

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OECD DK QA

Earlier this month, the Organisation for Economic Co-operation and Development (OECD) released the most comprehensive report ever compiled on the bribery of foreign officials. The report looked at 427 such cases since 1999 in 17 countries. Some of the results were surprising. Fifty-three percent of the cases of bribery took place with the knowledge or consent of corporate managers and executives. Other findings were predictable. The energy, mining, and construction industries are most likely to be corrupt. To put the report’s findings in perspective, CIPE’s Frank Brown spoke with Drago Kos, a Slovenian national who is the Chairman of the OECD’s Working Group on Bribery in International Business Transactions. He is an authority on worldwide corruption issues and trends, not only in the 41 countries that are a party to the OECD Anti-Bribery Convention, but also in Eastern Europe and Afghanistan.

What does this report tell us that previous such surveys, studies, and analyses have not?  Read More...

What Does the WTO Trade Facilitation Agreement Really Mean for Business?

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By Evelyn M. Suarez

On November 27, 2014, the World Trade Organization (WTO) was finally able to overcome an impasse created by India in July which prevented implementation of the Trade Facilitation Agreement reached in Bali in December 7, 2013. As described by WTO Director General (DG) Azevedo, “the impasse related to the political link between two of the Bali decisions – the decision on Public Stockholding for Food Security Purposes, and the Trade Facilitation Agreement.” The WTO General Council was able to address India’s objections after a breakthrough made by the U.S. and India on November 13, 2014 to simultaneously adopt the protocol necessary to implement the TFA and a decision clarifying the terms of an existing food security “peace clause.”

The WTO clarified that the peace clause agreed to in Bali will remain in force until a permanent solution is found hopefully by December 31, 2015 which is in advance of the original target date. It also adopted the protocol of amendment which formally inserts the TFA into the WTO rulebook according to DG Acevedo. Importantly, this clears the way for the TFA to come into force. However, it also removes the July 31, 2015 deadline for WTO members to ratify the TFA leaving open the ratification process open indefinitely. The Agreement enters into force once two-thirds of WTO members have completed their domestic ratification process.

So what does finalization of the first WTO multilateral agreement mean to international business?  According to DG Azevedo it means that the work of the WTO is back on track. The WTO General Council decisions were lauded by IMF Managing Director Christine Lagarde, who commented that this would provide an opportunity for advancing multilateral trade negotiations in other areas which is essential for global growth.  According to U.S. Trade Representative Ambassador Michael Froman “[t]he Trade Facilitation Agreement has the potential to fundamentally reform global customs practices and substantially reduce the costs and time associated with goods crossing borders.  It’s a perfect example of how breaking down barriers to trade can unlock new opportunities for developed and developing countries alike, and it’s a particularly important win for small- and medium-sized businesses in all countries.”  That’s why TFA implementation is strongly supported by groups like the International Chamber of Commerce. Read more…

Power, Corruption, and Human Nature

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If absolute power always corrupts, why is Mugabe's Zimbabwe more corrupt than Harald V's Norway?

If absolute power always corrupts, why is Mugabe’s Zimbabwe more corrupt than Harald V’s Norway?

CIPE prioritizes combatting corruption because it is often at the heart of a nation’s systemic challenges. The top ten countries on the global corruption index run the gamut of the world’s most troubled zones: Somalia, Sudan and South Sudan, Yemen, Afghanistan, Libya and Iraq.

Perhaps this list surprises no one. Characterized by decades-long dictatorships and/or civil wars, it is expected that these countries would be unstable and corrupt. But should we take that causality for granted? After all, which came first: the dictator, the civil war, or the failed state?

A recent study at the University of Lausanne, Switzerland, may point to the answer — one that sheds light on the very core of what CIPE’s anti-corruption efforts face in these and other regions that lack the rule of law. The clinical experiment, organized and conducted by the Faculty of Business and Economics and published in the peer-reviewed journal The Leadership Quarterly, studied the effects of power in a causal way using variants of the dictator game. Read more…