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East: The West Also Played A Role In Spreading Corruption

The final installment in our eight-part series on corruption in the former Soviet bloc deals with the West's contribution to spreading fraud in post-Communist countries. RFE/RL correspondent Askold Krushelnycky reports.

Prague, 12 September 2000 (RFE/RL) -- In earlier articles, we explored how officials and businessmen in the East -- from crooked policeman all the way to the highest-ranking ministers -- perpetuate corruption in their own societies.

But the West has also played a role in spreading corruption in post-Communist countries. We've noted that Western policy-makers and financial institutions ignored evidence that many of the post-Communist governments they were dealing with were corrupt and misusing thousands of millions of dollars in loans. To a large extent, they did so because they were afraid that withdrawing their support could lead to a return to communism.

Washington-based Russian-affairs analyst Peter Reddaway says bluntly:

"The West -- the Western governments and the international organizations like the IMF [International Monetary Fund] and the World Bank -- simply turned a blind eye to this material [evidence of corruption] because it was simply news they did not want to hear."

In addition, many Western investors in transition economies went along with corrupt practices by paying bribes to officials because it was an easier and quicker way to do business. Several Western countries, including Germany, do not regard paying bribes as illegal and even allow tax concessions to offset bribes. Former U.S. Ambassador to Hungary Mark Palmer, who went into private business in post-Communist countries, said that some Western companies played an even more active role:

"There is no question the West has contributed [to corruption]. There are companies in the West that have a whole idee fixe that you cannot work in developing countries and in emerging markets without paying bribes to political types, and they are all too ready to do this. I've had first-hand experience with French companies, German companies, and others who were almost insisting on using bribes when bribes were not absolutely necessary."

Don Jensen, a former U.S. diplomat in Russia who is now associate director of broadcasting at the American-funded Radio Free Europe/Radio Liberty, believes many Western businessmen were happy with the lax laws and corrupt practices in the former Soviet bloc. He says they prevented proper investigation of such matters as the Bank of New York affair, where as much as $7 billion from Russian sources may have been laundered.

"I think a lot of private investors in the West -- banks, investment banks, and other economic and business organizations -- profited greatly by the sort of 'wild west' economic atmosphere in places like Ukraine, Russia, and parts of Eastern Europe. And there was no incentive for them to press for better laws, laws that would protect their investment, laws that would provide incentives to do business in those countries. So in a way they were unindicted co-conspirators in what happened."

To stop encouraging corruption, Palmer says that the West must pass laws to make it as illegal for their companies to engage in corrupt activities abroad as it is at home. But he thinks the West must also help the post-Communist countries themselves to develop institutions to fight corruption effectively.

"The other thing that I would say we in the West can do is to put more effort into developing legal systems, and helping through training and exchanges and all of the ways that we can help to develop civil society, particularly in the legal and contracts area."

To eradicate -- or at least substantially reduce -- corruption, democratic institutions are necessary. In general, those post-Communist countries where democracy has taken root most strongly, and where a transition to a market economy is most developed, suffer the least from corruption. These include nations such as Poland, the Czech Republic, Hungary, Slovenia, and Estonia.

Democracy brings with it greater freedom of information and transparency, making it more difficult to conceal misdeeds. An independent legal system can investigate and punish corruption without fear of the consequences. And an independent press, Palmer believes, is most critical in preventing corruption.

"I think the most important single tool [in fighting corruption] is a free press -- both electronic media and print media. Exposing these practices is what's really going to make a difference over time."

The prevention of corruption can also be bolstered by building a society where the need or opportunity for fraud is reduced. The more progress that has been made toward a free-market economy, the less opportunity there is for corrupt official interference. Separation of the state and private business is essential as well.

The wealthier a country becomes, the more it can pay its officials and thus reduce their temptation to take bribes. Conversely, the more corrupt a country, the less clear its laws are and the less it is possible for Western law-enforcement agencies to cooperate with those in post-Communist countries. Jensen says:

"There's a basic, nuts-and-bolts law enforcement problem, which is: what's illegal in the United states and Britain is not necessarily illegal in Russia or Ukraine. The Russian Duma (parliament) has never passed a money-laundering law. What is perfectly legal for a bank to do in Moscow may well be illegal in Washington, and this makes cooperation on law enforcement issues and criminal enforcement very difficult to carry out effectively."

Expert opinion is divided on whether corruption can be rapidly reduced in the post-Communist countries. Reddaway, for example, thinks the prospects for nations like Ukraine, the Central Asian states and, particularly, Russia, are bleak.

"Corruption is horrendously, deeply entrenched in the Russian political and business elite, and military elite as well, and rooting it out is going to be extremely difficult. Under even the best circumstances, it is going to be a long-term project -- by long-term I mean 10, 20, 30 years." Palmer, on the other hand, thinks many countries in the region have made progress toward political maturity and that some of them are well on the way to building societies where corruption is not the norm. But others, he says, have a long way to go.

"In places like Russia and Ukraine and Central Asia and the Caucasus, places like Azerbaijan, it's going to be a long hard struggle. But there are [still] things that can be done. There are things the West can do and there are more things that these countries themselves have got to do."

Whatever the best efforts of the West to prevent corruption, most of the fight has to be undertaken by the people living in post-Communist societies. And, if there is one lesson clear from our reports, it's that they will only be in a position to do that if they can bring about real democracy in their countries.