USA: Corporate Misdeeds Foment Corruption in Developing Countries

WASHINGTON -- The multinational firms recently fingered for corrupt practices in the United States may be practicing similar operations on a larger scale in developing countries, say long-time corporate watchdogs.

Investors, shareholders, the U.S. administration, and economists world-wide are still reeling from the string of corporate frauds that includes U.S. energy giant Enron and WorldCom, the international telecommunications company. Allegations of misconduct have surfaced against several company executives, including U.S. President George W. Bush from his days as a director of an oil company.

While the United States and its northern neighbors have focused on the impact of such scandals on investor trust in wealthy nations, the anti-globalization movement cautions that the corruption scourge could be several times more harmful to the economies of developing countries.

They argue that many global companies operate freely in poor nations, protected by conditions dictated by international financial institutions, such as the International Monetary Fund (IMF) and the World Bank, and the political might of Northern governments.

"Enron and WorldCom are just symptoms of the way companies are able to do business without too much accountability," said Nadia Martinez, research associate at the Washington-based Institute for Policy Studies.

"It is even worse in the developing world," she added. "It happens here and everyone goes up in arms. But in reality this has been happening in the developing world for decades with the support of Northern governments in many instances and with the support of our taxpayers' money by way of international institutions like the World Bank and Inter-American Development Bank."

Multinational watchdog Corpwatch says that these firms violate international law on many counts, including social and environmental violations and with flagrant corruption.

"Corruption is one of the many levels in which these companies very arrogantly come into a country and act like they own it and they do whatever they want," said Julie Light, managing editor of Corpwatch.org. "They can buy off the politicians and they can hire private security forces or pay the local police."

Earlier this month, The Wall Street Journal reported on corruption in the 550 million dollar Bujagali power project on the Nile River in Uganda. One of the contractors, the U.S. power producer AES, bribed a Ugandan official to hasten the dam's approval, said the report.

Martinez says that the shamed Enron, a now bankrupt firm with dubious off-balance sheet transactions, continues to operate internationally and is still seeking public funding for its non-scrutinized global projects.

Enron holds 25 percent of Transredes, a company seeking a 125 million-dollar loan from the International Development Bank (IDB) to expand a Bolivian gas pipeline. The Bank is expected to decide on the loan in September.

In research for the Institute for Policy Studies, Martinez says Enron's assets in Latin America alone include concerns in a pipeline in Colombia, gas and electricity companies in Venezuela and Brazil, and other operations in Panama, Guatemala, and Puerto Rico.

Public institutions, including the World Bank and the European Investment Bank have provided Enron with financing of about seven billion dollars, she adds.

WorldCom, a firm accused of cooking its books so it could overstate profits by 3.8 billion dollars, also has a presence in many developing countries. The company often boasted that its business interests span from everyday phone calls to advanced Internet-based networks in Latin America, Asia-Pacific, Europe and Africa.

Although activists like Martinez and Light have been calling attention to the practices of corporations in the South for years, they now say developing countries are more vulnerable than ever, because of diminishing monitoring. The IMF has been urging deregulation in the South for the past two decades.

"What the IMF, the WTO (World Trade Organization) and the World Bank have been saying to the third world is 'trust the market, deregulate, get the government out of the way, take the teeth out of the regulatory agencies, let corporate officials run government agencies, let them privatize'," said Danaher. "It's been a whole-package."

Poor nations stand defenseless before the mammoth-like corporations, some whose budgets are bigger than the spending of many poor nations combined, they add.

"If these corporations can wreck the United States, destroy our economy, take over the government, and bankrupt it in their interest, what are they going to do in Bolivia, Chad or Niger where there are not so many constitutional rights?" asked Danaher.

The activists say the cozy relationship between politics and business is partly to blame. Several officials of the Bush administration are former company executives, including the president himself and Vice President Dick Cheney.

"We need to close the revolving door of corporate leaders going into government, building up their Rolodex, finding out where the money is and then going back into the corporate world sucking public money out of government," said Danaher. "We need to build a firewall between money and policy making."

"It's time civil society groups started policing the corporations and holding them accountable on high-standards of international law, human rights law and local law," added Light.

• 106 Money & Politics
• 116 Human Rights
• 185 Corruption