The costs of corruption have reached earth-shaking proportions, prompting Herculean international efforts to clear out the muck

By JAMES WALSH

s he walked into a meeting in Jakarta recently, James Wolfensohn may have thought that he had taken a wrong turn somewhere. For all his personal charm and commitment to global good deeds, the white-haired president of the World Bank faced a barrage of charges from local critics of what was then still President Suharto's government. They rebuked Wolfensohn's organization for overlooking the massive misuse of money that contributed to the typhoon of financial chaos now hammering their country. Venality in high places had been obvious, the speakers charged. Wolfensohn conceded one thing. He admitted, "We didn't get everything right in the past."

Of course, things remain far from right around the Far East still, as the combustion of dreams has choked the air like the smoke from Borneo's wildfires. The Indonesian uprisings that deposed Suharto, leading to inquiries into his clan's lucrative holdings, are just part of the story. Billions of dollars' worth of aid and investments in Asia have vanished into some balancing-book twilight zone, thanks largely to cloistered, back-scratching, who-you-know systems of public administration. Hardly anyone paid attention to the cost of corruption when economies grew at double-digit rates, but the economic collapse in Asia has driven home the price everyone pays for such practices. Sometimes regarded as simply irritating or quaint or even humorous in a rascally way, corruption in the era of global finance can no longer be dismissed as somebody else's problem and the business of no one in particular.

Even vigilance and firm action are not always enough to curb the excesses of an entrenched government hell-bent on breaking the rules. Strange things have been happening to Kenya's President Daniel arap Moi on the way to the piggy bank. In a country famous for its game parks and safaris he has found himself in the sights of an elephant gun leveled by international donors who have declared open season on corruption. The conflict centers on $400 million in illegal export-incentive payments that Moi's government made to a local jewelry maker, Goldenberg, supposedly to reimburse taxes paid on imported raw materials. However, no taxes had been paid and no hard currency was brought into the country. So the IMF demanded an accounting of the missing money, the equivalent of 6% of Kenya's annual economic output. When the government closed down a private prosecution of the Goldenberg team, the IMF cut off $169 million in credit.

Moi is trying to stonewall, offering a few sops to the IMF but refusing to accept the root-and-branch internal reforms the agency is demanding as the price for the resumption of aid. Not long ago the IMF would have balked at using its purse to enforce accountability in a country. But today, the World Bank and IMF, sister agencies, are readier to blow the whistle. As Asia's debacles have demonstrated, corruption scandals can create such widespread turmoil that dispensers of aid cannot afford to carry on like the piano player in a brothel who pretends not to know what goes on upstairs.

Call it bribery, baksheesh, guandao, palm-tickling, payola or any other name, corruption is a wasting disease even if its beneficiaries regard it as mother's milk. No country is exempt, though poor nations usually suffer the worst. When Nigeria's President Sani Abacha died last week, he left behind an oil-flush nation where few of the proceeds seem to trickle down and where gasoline shortages are crippling daily life. Now corruption is a pressing concern at the highest levels of global policymaking. At the World Bank annual meeting last September, Wolfensohn marveled, "I think it is astonishing that in one year we should have come from being scared to mention the word to having it as a central item on the Development Committee agenda."

Today the dread word is also stamped on treaties. In Chile last April at the Summit of the Americas, President Bill Clinton and other heads of government up and down the New World reaffirmed a commitment to ending corruption. More crucially, the world's 29 richest countries and five others are in the process of passing laws to crack down on the bribery of foreign officials under the terms of a convention signed in December in Paris under the auspices of the Organization for Economic Cooperation and Development. The capstone of redoubled U.S. pressure over the past few years, the agreement becomes law when five of the 10 countries with the largest export shares, representing at least 60% of those 10 countries' total exports, have ratified it. If that has not happened by Dec. 31, those nations that have passed the convention into law may respect it as an international treaty--though just a limited endorsement would deliver a rather weak punch.

In effect, the signatories promise to do what the U.S. alone has done since 1977: criminalize commercial payoffs by their nationals to public servants abroad. Just as important, the agreement calls for ending tax deductibility of bribes, an allowance still permitted by some European countries, including France and Germany. This practice is denounced by graft fighters as a nearly naked encouragement to grease palms, not to mention an unfair advantage over more constrained business rivals.

The U.S. law itself is no perfect deterrent, and the treaty has even more loopholes. One big gap is the convention's failure to call for the outlawing of gifts to political parties, whose slush funds have figured in some notorious scandals. In the Czech Republic, for example, Prime Minister Vaclav Klaus had to resign late last year because of his party's fundraising irregularities. Then again, no law could be perfect. What matters is that "the cancer of corruption," as Wolfensohn calls it, is no longer condoned. The flood of sensational cases in recent years has shaken political systems in a way that cold war hugger-mugger never did. South Korea, Japan, Russia, Italy, Spain, Argentina, Brazil, India, Pakistan--all of them and more, from Albania to Zaire--have experienced uproars, in some cases upheavals, because of insider deals and ill-gotten gains. Mexico's political system was convulsed when Raul Salinas, brother of former President Carlos Salinas, was confronted with questions about how this former bureaucrat had amassed a fortune of some $125 million.

Megascandals that hit the headlines cannot begin to tell the story, but they certainly say a lot. Russian investigators may succeed this week in extraditing businessman Andrei Kozlenok from Greece. Prosecutors in Moscow want to ask him about the disappearance of over $180 million from the state-run Russian Committee on Precious Metals. He has dropped hints that he was only a front man for corrupt officials and claims he will be killed if he returns home. In Spain, Luis Roldan Ibanez, ex-chief of the Civil Guard paramilitary police, has been sentenced to 28 years in jail for embezzlement, fraud and tax evasion. Roldan had at least $10 million stashed in a Singapore bank, while another $11.2 million turned up in a Swiss account for him and his friends. In Nigeria, Finance Minister Anthony Ani remarks, "We have spent over $4.5 billion on the Ajaokuta Steel Mill project, but I doubt whether such a colossal amount of money could not produce three steel mills in Germany or Russia."

But the world champion grafter had to be Zairean dictator Mobutu Sese Seko. Until his overthow last year, he had plundered his treasury to the extent of perhaps more than $1 billion during the 32 years he ruled and bankrupted his country. Says Seth Goldschlager, a Paris-based American lawyer who serves as deputy director of the Coalition for Fair Business Practice: "I think people who used to view corruption and bribery as an unfortunate given are now seeing that it's simply got to go."

Gauging the grand sum of loot is impossible, though the World Bank has taken a stab: if the boodle equals just 5% of the value of all direct foreign investment and imports into countries with extensive corruption, the yearly take would total around $80 billion. Of course, that calculation tries to measure only theft from commerce crossing borders, not stealing state assets or the fleecing of fellow citizens. All that treaty making can do is try to spread a wider net for curbing international mischief. Outside of the U.S., which enacted its Foreign Corrupt Practices Act 20 years ago in the wake of Watergate and the Lockheed Aircraft scandal in Japan, no country until now has been willing to follow America's example. For U.S. firms, this smacked of unilateral disarmament because their foreign competitors remained free to roam the world putting in the fix.

Until recently, the O.E.C.D. initiative still seemed to many European governments laughably futile. A French observer of the negotiations acknowledges, "No one really thought we'd get this far, but I think people on all sides have shown a willingness to come together, learn from one another, compromise when necessary." The IMF-World Bank's crusade provided some of the oomph. So did the number of other multilateral institutions taking up the cause: the Organization of American States; the Council of Europe, which issued a "program of action"; the U.N. General Assembly, which passed a resolution 17 months ago.

The major mover and shaker, though, was Washington. When Clinton took office in 1993, the battle against commercial bribery moved up high on the foreign policy agenda. Both Warren Christopher, Secretary of State at the time, and Daniel Tarullo, then Assistant Secretary for Economic and Business Affairs, were former corporation lawyers who knew only too well the gripes of American companies about claim-jumping overseas. France, Germany and Britain turned deaf ears to their pleading, and Japan had long been a resister. But Britain finally came around, as did Japan, smarting from its image of corporate skulduggery. Europe's scandals made U.S. salesmanship easier.

Italy's Mani Pulite (Clean Hands) prosecutions against top politicians and businessmen, which began in Febuary 1992, have played out like a long-running soap opera, overturning the country's postwar establishment; more than 4,000 people have been investigated, about 1,063 indicted and 460 convicted, including Bettino Craxi, a former two-time Prime Minister, and Gianni De Michelis, an ex-Foreign Minister. Meanwhile, Germans were stunned by their own spate of disgraces engulfing virtually all German construction companies and many local officials. Once it became clear that hands got very dirty at home as well as abroad, the tax deductibility of bribes no longer seemed so useful. Says Stanley Marcuss, a Washington attorney who advised lawmakers in passing the U.S. statute in 1977: "Once you crack that ethical door, you start to wonder what the difference is between being a bit open and wide open. Open is open."

Ethics courses are becoming musts in the curriculums of Western business schools. Companies burned by exposes are recognizing how damaging the backfires from payoffs can be. Siemens' telecommunications wing was banned from doing business in Singapore after a utilities official in the city-state was accused of receiving millions of dollars in bribes from the German electronics giant and four other firms.

Other firms, like the Royal Dutch/Shell Group, have decided it is good business to clean house on their own. In its first integrated report, issued in April, on how its businesses and employees measure up to ethical standards, Shell said that in 1997 alone it fired 23 workers who had been detected in bribery and terminated contracts with 95 firms on ethical grounds. "We do not bribe, nor do we accept bribes," said the report. "It is a fact, though, that Shell managers are regularly offered bribes," the report admitted, but "employees are assured that they will not be penalized" for losing business by refusing to pay. Notes Goldschlager, whose Coalition for Fair Business Practice includes some top U.S. multinationals: "No one can really afford the money or scandal involved."

Some of the most persuasive arguments for that case have come from a Berlin-headquartered nonprofit lobby called Transparency International (see box), which has given a significant push to all the crackdowns. Peter Eigen, a former World Bank executive who heads Transparency, notes that leaders who feared tying the hands of just their domestic firms are seeing the sense of collective effort. "If all countries do it together at the same time," he says, "this fear becomes groundless and we might really see some results."

Besides, the war is under way not just against bribe payers. Wolfensohn's campaign targets recipients as well. The World Bank, long criticized for financing white-elephant projects and environmental disasters in developing countries, has undergone a shakeup since the Australian-born New York banker took the helm in June 1995. Now the bank and IMF are conducting spot audits of all their work to catch flagrant misuses of funds. The IMF cut off a $120 million loan to Cambodia when revenue from logging concessions mysteriously failed to appear. Operations were suspended in Nigeria, Sudan, Afghanistan and other countries on grounds that the aid was unlikely to reach the people it was intended for. While "poor governance" is now a cause for penalties, the World Bank is also offering cleanup strategies to governments seeking help. Latvia has applied, and the bank has also assisted Venezuela in an overhaul of its judicial system. In the words of Michel Camdessus, the IMF's managing director, "Our role is not that of a cop, but of a friend helping friends in charge."

But is corruption really at an all-time high? Perhaps not. "The abuse of public office for private gain," which is how Transparency and the World Bank succinctly define it, has been a scourge of politics probably since civilization began. What cannot be denied, however, is that opportunities for corruption on a grand scale are riper than ever. The demise of command economies and the globalization of commerce has engorged the world with money. From the early 1980s to 1995, the total of cross-border direct investment ballooned from around $50 billion to $318 billion a year. At the same time, portfolio investments sent overseas shot up from $1 billion in 1988 to $48 billion in 1993. Postcommunist states selling off their assets, Latin American republics trying to catch up after their "lost decade" of the 1980s, Asian tigers until recently at full roar--all swallowed enormous amounts of foreign funds. The morning after has now arrived in Asia, where the theory of "benign" graft--a kind that supposedly honored patron-client cultural traditions and rewarded efficiency--has gone to the shredder.

Japanese bureaucrats traditionally enjoyed a reputation as clean, hard-working civil servants who had traded in high private sector pay for the prestige of working at a powerful ministry. The reality was different, as is now evident from revelations of the past few months. At a time when the economic superpower is desperately needed to help pull Asia out of the mud, Japan's Finance Ministry, long esteemed as a citadel of virtue, is paralyzed by scandals involving charges of payoffs and favors from big business. The nation looked on in shock earlier this year as some 100 police and prosecutors poured through the formerly untouchable ministry's main gate.

Japan's politicians largely surrendered direction of the economy to bureaucrats, giving them control over companies--and the power to demand favors from executives in return. But the political system has been even more corrupt, relying on large contributions from Japanese corporations, particularly in the construction sector and even involving the yakuza, Japan's version of the Mafia.

In China, guandao, or official corruption, is far more pervasive than it is in Japan. President Jiang Zemin has declared a war to root it out in a "life-or-death struggle" for the Communist Party. The size of the problem became obvious in a $2.2 billion scandal in 1995 involving former Beijing party chief and Politburo member Chen Xitong and his deputy, Wang Baosen, who killed himself. Though some 500,000 government or party officials have reportedly been "punished" for involvement in kickbacks or favoritism, extortion still manages to exact its tolls for such common wants as passports, business licenses, school diplomas, even court decisions.

Applying the brand of shame to such knavery is the way Transparency International has made its mark. With the help of Gottingen University economist Johann Lambsdorff, the pressure group puts out an annual list ranking countries--about 50 on each of the three lists so far--according to how corrupt they are rated by international companies. The Corruption Perception Index, a meta-analysis of polling data, is hardly like any Worst-Dressed list: no laughs or cachets of inverted snobbery attach to it. Pakistan's rating of next-to-worst in 1996 raised a tumult that brought down Benazir Bhutto's government. Islamabad claims that Bhutto and her husband, Asif Ali Zardari, stole over $1 billion from state coffers. Swiss authorities have frozen 17 bank accounts belonging to the couple and their partners, and a Swiss judge said this month he intends to indict Bhutto and her husband on money-laundering charges.

Last year's Transparency list rated Nigeria, Bolivia, Colombia and Russia the worst, in ascending order. From the other end, Denmark, Finland, Sweden and New Zealand ranked as best. For fairness' sake, Transparency also tries to rate exporters of payoffs. "We knew we were only showing half of the story," explained Transparency's Carel Mohn. This imperfect index, based on suspiciously high levels of trade with reprobate regimes, ranks Belgium, France and Italy as the top three "likely" to harbor businesses that pay bribes.

As far as the World Bank is concerned, the real issue is how badly grease fouls up an economy. The poor lose the most when money is misspent. In Washington, Daniel Kaufmann, the bank's lead economist, explains, "Now we have a plethora of literature showing that corruption has a negative impact on all those indicators we care about in development--economic growth, domestic and foreign investment, poverty." Shang-Jin Wei, a professor at the Harvard School of Government, calculates that the difference of corruption levels between Singapore and Mexico--rated as very clean and much less so, respectively--is the equivalent of boosting taxes by 24 percentage points. The waste of efficiency to businesses is also incalculable.

The former Soviet states are widely judged to be among the most flagrant ripoff artists. By one reckoning, $150 billion in ill-gotten funds from Russia may be squirreled away abroad. The recent haggling over Russia's new Prime Minister again highlighted claims that important votes in the Duma, the lower house of parliament, are for sale. A well-informed Moscow paper claimed that one faction leader had been offered $12 million to change his vote. A lot of the money allegedly came from a couple of Russia's highly politicized top financiers--who would themselves have great difficulty explaining their wealth's origins. In March, the citizens of Nizhni Novgorod, once a showplace of reform, elected Andrei Klimentyev as mayor despite his prison record. When the local electoral commission overturned the result and clapped Klimentyev back in jail, supporters rallied to his cause.

Sin will always be with us, of course, and greed will find its paths. Yet until citizenries demand an end to thievery grand and petty, the evils of what Argentina's Luis Moreno Ocampo calls "hypercorruption" in his own country will continue to plague people with the least power. In such settings, the law is far from being an answer. Says Moreno Ocampo, a prominent former prosecutor and now Transparency's local head: "It is precisely the police who commit the worst crimes in Latin America." The O.E.C.D. treaty can only serve as a worthy but flawed beginning. Washington lawyer Marcuss warns, "No one should be fooled by this. This is not an end to anything. It's going to be the first leg of a long and hard journey." And wherever the road goes, no doubt, more tolls will have to be paid.

--Reported by Bruce Crumley /Paris, Chandrani Ghosh /Washington, Irene M. Kunii /Tokyo, Alexandra Stiglmayer /Berlin, Yuri Zarakhovich /Moscow and Other Bureaus