The Effect of the OECD Convention in Reducing Bribery in International Business

Abstract Purpose: To determine if the OECD Convention against bribe giving in international business has been effective in reducing the propensity of firms to give bribes. Design/methodology/approach: The Bribe Payer's Index for OECD and non-OECD countries are compared statistically to determine if there is a difference between the two groups. Findings: Firms from OECD countries are perceived to be less likely to give bribes than firms from non-OECD countries Research Limitations/Implications: Multilateral treaties against bribery that includes coordination of investigation and prosecution among law enforcement officials from member countries have an impact on discouraging firms from the member countries to give bribes in international business. Apart from international treaties, there are other factors that contribute to reduced levels of bribe giving by firms. Practical Implications: Firms from OECD countries can find the cost of bribe giving to be very high as they not only violate the law of their home country but they can be prosecuted and punished in multiple jurisdictions. Firms from non-OECD countries may not have such restraint on giving bribes when doing business in non-OECD countries. Originality/value: This is the first study that investigates the effect of the OECD Convention on Combating Bribery on actual levels of bribe giving and ascertains whether such international agreements bear the desired results. Keywords: Bribery, Bribe Giving, OECD Convention, Bribe Payers Index, International Business Introduction The growth in international business has been accompanied by increasing incidences of bribe giving to secure contracts. The World Bank estimates that more than USD1 trillion in bribes is paid each year out of a world economy of USD30 trillion -3 percent of the world's economy (Labelle, 2006). Bribery is seen as undesirable -it raises the cost of doing business, creates uncertainty, perverts market mechanisms, retards economic growth, erodes public respect for the rule of law, misallocates resources, and distorts competition (Mauro, 1995, Lambsdorff, 2003). In response, worldwide efforts have been mounted to curb bribe giving. National governments, inter-governmental bodies, business organizations, and civil society groups have adopted laws, treaties, protocols, codes of conduct, policies, and other strategies to combat this problem (Tanzi, 1998). While there is a growing body of work on the subject of bribery in international business, not much has been written on the effectiveness of a coordinated application of an international treaty designed to combat bribery. A distinctive feature of international business is that national laws and their enforcement are the sovereign right of individual countries and firms doing business across borders have to abide by the laws and regulations of both home and host countries (Schaffer, Filiberto, and Earle, 2009). International treaties usually means an agreement among sovereign nations to compromise on their absolute right to create and enforce (or not enforce) laws on agreed upon situations and instead cooperate with other sovereign countries to apply a law uniformly across borders on individuals and entities. The United States (U.S.) was among the first major countries to enact a law--Foreign Corrupt Practices Act (FCPA) 1977--barring bribery in international business (Craig and Woof, 2002, U.S. Department of Justice, undated). The law was only intermittently enforced until the late 1990s. Since then, the U.S. government has markedly stepped up investigations and prosecutions of violators of the law with punishment that includes hefty fines, disgorgement of profits, and even imprisonment of corporate officials (U.S. Department of Justice, 2014). There are several reasons for this increase in prosecuting bribe giving, one being the adoption by the Organization for Economic Cooperation and Development (OECD) of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (referred henceforth as the OECD Convention). …