Friday, November 16, 2007

Corruption in Pakistan: Can the West help end it?

As I saw the recent reports from Munich about Siemens pleading guilty to bribing politicians and officials in Nigeria, Russia and Libya, it reminded me that Siemens is a large player in Pakistan. Has any one looked into Siemens engaging in similar corrupt practices in Pakistan?

And, how about the behavior of other American and European companies operating in Pakistan? There are definitely laws on the books in the West such as the Foreign Corrupt Practices Act (FCPA) in the United States. All ethics classes taught in the West in management schools and company training cover this topic. However, the question is whether these laws are really enforced and how often are the companies held accountable? Or do they simply rely on the foreign governments to report misbehavior? It would be a fantasy to expect the officials and politicians on the receiving end to report incidents of bribery as they are the main beneficiaries. But I think the German, French, US and other western governments and other developed nations who claim higher moral positions should be cracking down on these reprehensible practices just to enforce their own laws and live up to their own higher standards. While it may be argued and it is like putting the shoe on the wrong foot, I see it as the only hope we have of containing such widespread corruption in developing nations that is robbing their people blind.
Looking at Pakistan, there have been serious allegations and at least preliminary evidence to suggest that illegal payments were made to Bhutto-Zardari controlled fronts by companies in France, Switzerland and Poland. There was some action pursued in Switzerland at the request of Pakistani Government under Pervez Musharraf. However, France and Poland have not pursued the charges of corruption involving their companies in Pakistan. The only explanation I have heard is that the FCPA style laws did not exist in France prior to the year 2000. It has made me wonder whether there is an inherent conflict when it comes to European or American governments taking action against their own companies. After all, there are jobs in these countries that depend on exports to the developing nations. Would they rather be pristine in their efforts in enforcing their laws even if it means losing business and jobs to the Japanese, Koreans and others?

Upon searching the Internet, I found at least one report in Forbes magazine regarding Siemens in Pakistan:

"The World Bank is looking at an electrical power plant project in Pakistan concluded in the mid-1990s, which was built and later partially maintained by Siemens and financed by the World Bank.The World Bank is concerned that Siemens' costs for the project may have been overpriced.Siemens is currently engulfed in a slush-fund scandal, in which prosecutors allege that managers siphoned off hundreds of millions of euros in company money to obtain foreign contracts.Siemens' own internal investigation uncovered 420 mln euros in suspicious payments going back to 1999 which may have been made to obtain telecommunications equipment contracts in a range of foreign countries.The Bavarian State Prosecutors office has said the sum is estimated in the triple-digit millions of euros."

These reports beg the following questions: Do they represent only the tip of the iceberg of political and official corruption in the developing world? Are there more such investigations and prosecutions on the horizon? I certainly hope there are. In my view, serious action by the Western prosecutors seems to be an effective way to reduce the scourge of rampant corruption in developing nations such as Pakistan.



3 comments:

Riaz Haq said...

Here's a report of French Defense Minister confirming bribes paid to Pakistani officials on a submarine deal in the 1990s during the PPP regime:

Former French defense minister has confirmed bribes on arms deals with Pakistan, the cancellation of which prompted the deadly Karachi bombing in 2002.


Charles Millon, on Wednesday, told a hearing tasked with probing into the killing of French engineers that he was sure there were kickbacks on ammunition contracts with Pakistan.

“For the Pakistani contract, looking at the secret service reports and analyses carried out by the (defense) ministry services, one has the absolute conviction that there were kickbacks,” AFP quoted Millon.

Former President Jacques Chirac had tasked him with ending bribes on arms contracts shortly after coming to power in 1995.

However, bribing between officials and corporations in France continued until an incident involving arms deals eight years ago allegedly resulted in a deadly bombing in Pakistan.

The bomb attack took place in Karachi, in May 2002, in which 15 people died, including 11 French engineers and technicians from the Directorate of Naval Construction, working in the construction of submarines.

Since 2008, French persecutors are examining charges that the cancelling of commissions for one of the arms deals prompted the attack.

Riaz Haq said...

Here are some excerpts from an Op Ed in Newsweek Pakistan by Meekal Ahmed, a former IMF official:

The government hopes to generate Rs. 53 billion during the last quarter of the current financial year, which concludes on June 30. It hopes to achieve this by imposing a 15 percent surcharge on income tax paid by Pakistan’s paltry 1.7 million registered, individual taxpayers. Given the small tax base and modest yield, the surcharge seems unfair and not worth it. In a move that is regressive and potentially inflationary, depending on the market, excise duty on certain import items has been increased from 1 percent to 2.5 percent until end-June. While these measures are better than doing nothing at all—which is what happened during the first three quarters—they are far from ideal, and don’t go far enough to address the big problems with the economy.

But it’s not all bad. The elimination of tax exemptions for agricultural inputs (including tractors, fertilizers, and pesticides) was long overdue. With a strong agro-lobby preventing taxation on their handsome incomes in a sector that contributes 21 percent of GDP, the government might as well tax the inputs. Tax exemptions for export quality textiles sold within Pakistan have also been nixed despite resistance from the fierce textile lobby. The freeze on additional hiring in the public sector, and the 50 percent cut in several spending categories should also be welcomed.

Then there is the profusion of what many Pakistani media outlets call “petrol bombs”—highly unpopular oil price adjustments at the start of each month. The government announces the adjustments, and then rolls them back under popular and political pressure. The fuel price adjustments are unavoidable. Pakistan is a net oil importer and can’t insulate itself from global price shocks. Oil prices have risen steeply in the last three months, and have now crossed the psychologically important 100-dollar mark. Pakistan’s fuel subsidies—at an estimated Rs. 5 billion per month that could have been spent on development—are unaffordable and unsustainable. Oil prices will remain high for a while. Pakistanis must adjust to this reality. .....
...
Despite the new measures, doubts remain about the revised tax-revenue targets and the state’s capacity to achieve them. The Federal Board of Revenue is notorious for its chronic underperformance. The justification that there is a tax revenue shortfall because the economy is in recession holds no water. An economy expected to grow at around 3 percent is not, technically speaking, in recession, but is growing below its potential. There is no cycle for fiscal revenues in Pakistan: whether the economy grows at 3 percent or 7 percent, whether inflation is 2 percent or 25 percent, tax revenues fail to keep up. If they did not, there would be a constant tax-to-GDP ratio, which is actually falling. This trend points to the existence of deep-rooted structural deficiencies in the tax system, which is regressive, anti-poor and plagued by too many exemptions and concessions. Then there’s also corruption, abuse of the system, and evasion. Even taxes withheld at source are not deposited in the government’s account because of alleged connivance between withholding agents and tax officials.

Riaz Haq said...

#US government fines #Boston firm $4 million for bribing #NHAI officials in #India. The FCPA Blog - The FCPA Blog https://shar.es/1BP2Cd
Privately held CDM Smith Inc. entered into a declination with disgorgement Thursday with the Justice Department to resolve FCPA offenses in India.

The DOJ said employees and agents of CDM Smith and a wholly owned subsidiary in India paid $1.18 million in bribes to government officials. In return, the company won highway construction supervision and design contracts and a water project contract.

The Boston-based company made profits of $4 million from the tainted contracts.

The enforcement action is the seventh under the FCPA Pilot Program since the DOJ adopted it in April 2016. The program gives companies incentives to self-disclose, cooperate, and remediate FCPA violations.

Companies that qualify can receive a 50 percent discount on fines they might face under the U.S. Sentencing Guidelines.

CDM Smith has about 5,000 employees worldwide. Revenues were $1.2 billion in 2015. It provides engineering and construction services.

The DOJ said the bribery in India occurred from 2011 until 2015.

The illegal payments for the highway contracts were generally 2 percent to 4 percent of the contract price. The bribes were paid through "fraudulent subcontractors who provided no actual services and understood that payments were meant to solely benefit the officials," the DOJ said.

The company also paid $25,000 to local officials in the Indian state of Goa for a water project contract.

"All senior management at CDM India . . . were aware of the bribes . . . and approved or participated in the misconduct," the DOJ said.

CDM Smith agreed to disgorge $4.03 million. It "acknowledged" that it can't take a tax deduction for the disgorged funds.

The DOJ said it closed the investigation under the Pilot Program because CDM Smith disgorged its profits, made a timely voluntary self disclosure, did a comprehensive investigation, gave full cooperation, enhanced its compliance program, and fired all executives and employees involved in the FCPA offenses.

The declination with disgorgement from the DOJ to CDM Smith Inc. is here (pdf).


https://www.justice.gov/criminal-fraud/page/file/976976/download


http://timesofindia.indiatimes.com/india/us-firm-admits-to-paying-1-1m-bribe-to-nhai/articleshow/59535930.cms