According to the United Nations 1997 World Development Report, 15% of all companies in industrialised countries have to pay bribes to win or retain business. In Asia the figure rises to 40% and for Former Soviet Union countries the figure is 60%. In recognition of this many OECD countries actually recognised bribery as a tax deductible cost for companies trying to do business abroad.

However, this tolerance of corruption is rapidly changing. This is in large part driven by pressure from the US where domestically-based companies aren't tolerated bribing in foreign countries. US companies are at a disadvantage to foreign competitors which do tolerate corrupt practices. As such the US government has been engaged in a campaign to create a more level playing field for US coporates.

But the US government is not alone, organisations such as the Berlin-based Transparency International are adding to the pressure to make bribery an unacceptable business practice. Says Miguel Schloss, Transparency International's executive director for LATAM, Africa and Middle East: "There is definitely a growing mouvement against corruption throughout the world. People are demanding more accountability from their rulers and are increasingly resenting corruption."

The media in many countries - previously run by dictatorial regimes ? spend a lot of their time exposing corruption and making it a public issue. This has forced governments to make an effort to clean up their act. For example much has been done in Chile to make procurement more transparent and less open to abuse. Hong Kong, which suffered from endemic corruption up to the 1970s is now a good example of good practice. Similarly, Singapore has become tougher on corruption.

Increasing global competition has also made corruption less tolerated. Firms are having to rely more on their ability to deliver quality services and products rather than the size of their kick-backs. Privatization is also playing role. Many state owned firms that were once inefficient and run by government cronies now have to answer to private sector shareholders who want to see their capital work.

The World Bank makes a stand

The World Bank is also spending money fighting corruption and now names companies in news releases which have been caught red handed trying to bribe their way into winning business from projects financed by the Bank. It is not difficult to see why multilaterals such as the World Bank take such a dim view of corruption. It undermines the bank's investments as well as the economies of the countries which are recipients of the loans.

As Transparency International notes: corruption reduces economic growth, scares away foreign investment and often channels funds into "white elephant" projects that are of no real benefit to anyone except the corrupt decision makers.

A case in point is the construction of petro-chemical refineries in Indonesia, which simply were not viable compared to similar plants in Singapore. As one analyst noted they served no purpose other than to enrich the Suharto family and their close associates.

In the 1960-70s numerous power stations and steel plants were built across Africa and Latin America. Many of these projects did not make economic sense either. But there are other considerations.

Officials at the World Bank believe that widespread corruption can reduce a country's economic growth rate by 0.5% to 1%, as well as reducing inward investment. Nigeria's poor political track record, for example, has deterred many foreign investors. In Nigeria with the end of the Abacha regime and with democratic and anti-corruption reforms taking place, investors' attitudes will change. The UK's Commonwealth Development Corporation (CDC) is already considering the country as a source of projects. Its progress will be carefully monitored by others in the investment community.

Rating agency, Standard & Poor's illustrates why investors are loath to invest in heavily corrupt countries. According to information from the agency there is an 80% to 100% chance that investors will lose their entire investment in five years in countries such as Colombia, Iraq and Libya. For Egypt and Syria this assessment is put at 60% and 50% for countries such as Algeria, Jordan, Morocco and Turkey.

Says Transparency International's Schloss: "This means that investors in these countries will expect extremely high returns to compensate for the risk."

But how can corruption be curtailed?

According to various World Bank documents corruption arises when public officials have wide discretionary powers with little accountability. The situation gets worse as officials start to create additional red tape and delays to induce higher payments. Corruption tends to flourish in countries with highly distorted policies and weak law enforcement, such as Russia. It can also arise when officials are poorly paid therefore giving them an incentive to extract bribes to survive.

The Bank advises that corruption has to be fought on several fronts. First officials' discretionary authority needs to be curtailed, while increasing their accountability.

The price of getting caught also has to outweigh the benefits of participating in corrupt practices ? and this applies to giver and taker. On the other hand favourable performance needs to be recognised and rewarded. The elimination of subsidies can reduce corruption. If the state has no authority to restrict exports or to license businesses, there will be no more opportunities for corruption in those areas. Clarifying and streamlining laws is important as this reduces official's discretionary powers. Some governments have gone to the extreme of only allowing private companies that have no close ties with the country in question to participate in tenders.

To ensure the mechanisms are functioning properly, the World Bank recommends the setting up of Independent watchdog institutions. Says Schloss. "It is important that bidding processes be transparent as this reduces the possibilities of corruption developing." He explains that a rigorous approach is needed to reduce corruption. For example, bidders can be asked to deposit bonds against the contract, which can be confiscated if the bidder is caught trying to bribe officials. There should also be a full disclosure of payments from or to third parties. Says Schloss: "Involving society in the decision making process is also a good way of reducing corruption and making people feel part of the project." He explains that this process had taken place with the $650 million Buenos Aires metro H-line project. Says Schloss: "They held public audiences and involved people in discussions on how the line should be developed and build." Transparency International played an advisory role in the project. The pre-qualification process was also designed to be transparent.

Also in Argentina, the State of Mendosa, experimented with transparent bidding processes for the bidding of public procurement contracts, which encouraged competition. "This resulted in significant reductions in the amount the state paid for general goods and services," explained Schloss.

In fact, Transparency International has developed a procedure called the Integrity Pact, which various countries are beginning to adopt in one form or another. Essentially this means all parties involved in a project to agree to conduct business in an honourable and fair way. It also addresses procedures for dealing with disputes. In Latin America, "where the legal system can be very slow, the Integrity Pact offers a way of resolving differences quickly and efficiently," says Schloss.

But what if a bidder suspects its rivals of being underhanded?

Says John Bray, a corruption specialist with security consultants and risk analysts, Control Risk Group in London: "A company faced with those circumstances can use diplomatic means to help it win the contract. It involves communicating with the public and government officials the benefits offered by giving your company the contract." Bray says that these types of communications efforts have to be handled with great care. "However, it has to be said that these initiatives can be expensive," he adds. Increasingly western companies are setting up initiatives that bring in public involvement in the design and execution of a project .

Says Bray: "I think a company also has to take into account the risks associated with bribing for contracts. If a new regime takes over this can cause repercussions as the company is seen as too closely associated with the old regime."

There are many cases where honesty has paid off. One company in the Philippines was told it was expected to contribute to the re-election of the local mayor as part of the conditions of winning a contract. The firm refused and instead focused on telling the public the number of local jobs and training schemes that it would create locally if it won. The firm did win the contract.

And just as governments in India and the Former Soviet Union make it clear that corrupt practises are not acceptable at any level, companies are making it part of their mission statements to distance themselves from bribery. In many cases internal audits and checks are being put in place to make sure company staff, particularly at the sales end, are not engaging in illegal activities. "It is now becoming a legal issue. For instance an American company caught handing out bribes abroad can be prosecuted by the US government for doing so," says Control Risk Group consultant.

The World Bank has a policy of debarring companies caught in the act of bribery from participating in projects it finances. Since its Sanctions Committee was set up in November 1998 seven companies and two individuals have been declared ineligible to be awarded Bank-financed contracts.

The pressure for firms to behave honestly is being further increased by an OECD initiative called the Convention On Bribery Of Foreign Public Officials In International Transactions. This convention seeks to address the supply side of the equation and looks at the way foreign international transactions should be done. It criminalises corruption making it risky for firms domiciled in OECD countries, which have signed the convention, to participate in bribery abroad. It goes without saying that it also seeks to do away with tax incentives associated with bribery. The US has been an important driving force behind this convention.