Export Guarantee Insurance - A Study by Artur Victoria

As a result of campaigning by anti-corruption groups, attention has recently focussed on the Export Guarantee Agencies of a number of Western countries. These agencies provide taxpayer backed insurance for domestic companies undertaking business in high-risk areas abroad. In the total contract fee insured hidden bribes or semi legal fees and commission are covered.

The blatant contradictions of the British official attitude to bribery overseas has been pointed out by the Cornerhouse group. They have analysed two suspect cases in detail in their recent ) report. They summarise allegations of bribery and financial mismanagement surrounding two proposed hydropower schemes in East Africa. The UK ECGD provided financial backing for Knight Piesold initial consultancy role in the proposed Ewaso Ngiro (South) hydropower scheme in Kenya and was considering support for the proposed Bujagali Dam in Uganda. It is not within the remit of this report to prove the allegations, that role rests in a court of law.

However, it is believed there is sufficient reason to warrant further investigations into the possibility of financial mismanagement in several aspects of the contract allocation for both the Ewaso Ngiro and Bujagali proposals. In 1992 a World Bank study team reported that initial feasibility studies by Knight Piesold were five times what such services would normally cost. They report that at least £15.3m had been paid up front to Knight Piesold even though the project was not due to come on stream for another 10 years. The exorbitant cost of this contract together with the high level of up-front payments?.even before the feasibility study has been completed,raise fundamental questions about procurement practices and financial management.

These findings certainly raise concern over the operation of the UK matters that the British Government are beginning to recognize. Under criticism, implemented new guidelines in September 2000. These require all companies seeking to cover to sign a declaration that no person associated with the contract has been, or will be , involved in any Corrupt Activity either in the UK or elsewhere. Cornerhouse believe that further criteria need to be introduced by the ECGD to deter corruption.

The British experience is in no way unique and these contradictions are reflected in many of the Export Guarantee Agencies covered by this. The illegal commission quotient of contracts can amount to 30%. Figures are hard to come by but a French secret service report said the official export credit agency paid around $2 bn in bribes to foreign purchasers of defense equipment.

The good will that accompanied the 1997 Bribery Convention will not last ad infinitum. Perceptions that countries are not living up to their obligations under the Conventions will inevitability weaken the agreement and lead to erosion of public confidence. Recuperating the momentum and enthusiasm of that initial accomplishment will go far to ensuring that it is not yet the end of the honeymoon.

International debate over good governance and best practice may work towards the best mechanism for investigating political and business corruption.

There are many areas still in need of urgent reform. The OECD convention, which has been so effective in many ways, left loopholes. The need to stop companies using political donations to briber foreign officials has to be outlawed.

Some countries need to reform their laws so that extra-territorial offences are included and extradition is made easier.

Several International institutions have a long way to go. The World Bank and EU both need to carry out further reform to prevent bribery and corruption in programs they fund.

On a broader agenda more research needs to be done in the way defence contracts involving foreign countries are awarded. The US, Germany, France and Britain are among the biggest arms sellers in the world. They are extremely competitive. As these contracts usually involve an element of national government involvement are even more secretive than normal contracts. Yet the evidence we have indicates that there are still excessive commissions (bribes) paid in these deals.

The Cornerhouse Group rightly say that there is an urgent need to shift the focus of anti corruption measures. In seeking to explain corruption, most commentators tend to dwell on developing countries, not industrialised ones, on the bribe takers not the bribe givers. The intimate connection between corruption in the South and the institutional culture, bureaucratic practices and priorities of public and private institutions in the North is thus effectively obscured

Some campaigners suggest that the best deterrent for companies that have a propensity to bribery and corruption would be an international blacklist. The World Bank's current blacklist is a start but it really only deals with some very small fish. A blacklist that names and shames the big players, but more importantly prevents them obtain international contracts would be a forceful statement ? a landmark in the fight against bribery and corruption.

Other campaigners think that blacklists are often counterproductive. But the real deterrent for those who continue to bribe and corrupt is a real fear of detection and prison. The only way for the momentum of the anti-corruption movement to continue is by the installation of tough investigation and prosecution authorities. Many countries in Western Europe and North America are yet to show that they are willing to prosecute offenders. International Conventions have a effect but without real regulatory muscle they will whither away and die.