Corruption in international business transactions

Term Paper 2002 25 Pages

Politics - International Politics - Topic: Miscellaneous


Table of content s


1. Introduction
1.1 What are international business transactions?
1.2 What is corruption?
1.3 Types of corruption in international business transactions

2. Corruption in international business transactions
2.1 The causes of corruption in international business transactions
2.2 Actors involved in corruption in international business transactions
2.3 The effects of corruption in international business transactions

3. Conclusion
3.1 Corruption as a constraint in international business transactions – The fight against corruption
3.2 Roles of national and international, governmental and non-governmental organisations in detection, prevention, minimisation and/or resolving corruption in international business transactions
3.3 Proposal for solution to minimise, resolve and prevent corruption in international business transaction

4. Summary


Primary Source:

Secondary Sources:


The objection of this study, loosely, is to identify the causes and effects of corruption in international business transactions, the meaning of (corruption in) international business transactions and how can we detect, prevent, minimise or even resolve the problems.

Thesis question: Is corruption in international business transactions an accepted norm that is tolerated globally? How has it come to be so, what harms has it done and what can we do about it?



1. Introduction

In recent years, global awareness of corruptive practices or rather corruption as such has increased enormously. In the past few years corruption in the political scenes such as scandals, immoral practices, etc., to name just a few, comes into light for the public. However, corruption does not exist only in the politics but frankly corruption is everywhere. When one takes a closer look at what actually goes on in everyday lives, one encounters minor or even major corrupt activities in every social strata[1], be it in the politics, work places, households or even between schoolchildren[2].

One of the area which is most susceptible to corruption is the business arena, especially international business. Where exchange or transaction occurs in international business, it is highly possible that there will be corrupt practices parallel to this transaction, be it the so-called “speed money” or “grease money”, which would be used to speed up bureaucratic processes between enterprises and government institutions, or ranging from nepotism and patronage to red-tapes corruption, kick-backs and rent-seeking, etc., to name just a few corrupt practices.

In this study, a short look at the typologies of corruption and international business transaction will be taken. Which will then lead on to the analysis of the emergence of corruption in international business transactions, its actors and its effects. As a conclusion, an attempt to solve, lessen and prevent further corruption using different instrumentations and institutions will be proposed.

1.1 What are international business transactions?

According to Philip Kotler, “a transaction is a trade of values between two or more parties: A gives X to B and receives Y in return”[3]. Furthermore, Kotler differentiated the typologies between “monetary transaction” and “barter transaction”. Whereas the former involves money as one of the traded values, the latter involves trading goods or services for other goods or services, i.e. there is no requirement for the presence of money.

Thus transaction can be simplified as a process of exchange between two or more parties. This exchange occurs out of desire to obtain a product, be it a material (e.g. an object) or immaterial product (e.g. services). In order to obtain this product, something must be offered in return. The return offer can be both or either material or immaterial.

1.2 What is corruption?

Corruption[4] is broadly understood under the definition of “misuse of public power for private profit”[5], at least in the sense of political corruption. But what about corruption in business exchanges, or rather, business transactions? Can corruption under business transactions be categorised under the same definition of political corruption? In this part, an attempt will be made to define the term ‘corruption’ in (international) business transactions.

As mentioned in the introduction, there is the so-called “speed/grease money” which is normally understood as small amount(s) of bribe(s) to speed up the bureaucratic process. This may just be to speed up a customs officer to bring down his stamp onto the paper in two days instead of two weeks. This type of corruption may be classified under the term “petty corruption”, which generally occurs “when private actors interact with non-elected government officials, particularly lower-level, administrative bureaucrats”[6]. However, corruption at the highest levels of government also exists, “where political leaders, the bureaucracy, and the private sector all interact”[7]. This latter type of corruption is classified under the term “grand corruption”.

Grand corruption does not occur only on the political field, it can also occur on the economic and business field. The arena for corruption, as mentioned above, does not confine itself to only specific areas, but rather it can occur everywhere and in many forms. One also needs to take into account that all these different areas also interact with one another and thus so does corruption. One of such area where corruption takes place frequently is the arena for international business transactions.

In important cases, bribes can amount up to very high sums. Generally such cases occur between the highest (government) officials and often involve multinational concerns, alone or in syndicates with local partners[8].

The French oil company’s, Elf Aquitaine’s, corruption scandal, which came to light in 2000-01, illustrates the case of grand corruption, in which the actors involved are high positioned CEOs and (former) politicians[9].

To summarise this point up, corruption in international business transactions can be, more or less, categorised parallel to that of political corruption. The actors in corruptive practices usually involve those from government offices and those in the business practices. Thus each part has its own term of corruption, but in order for the corrupt practices to take place, the different actors in the practices have to interact with one another, hence the parallelism of both business and political corruption, although it is obvious, as would be mentioned later on, that both areas will overlap each other many times enough.

1.3 Types of corruption in international business transactions

As mentioned above, corruption in international business transactions is usually categorised under ‘grand corruption’. However, this usually involves only high-profiled actors such as politicians and CEOs of multinational enterprises. Corruptions in international business transactions usually run after the same pattern: isolated criminal investigations trigger off a snowball-effect of proceedings, the media took on the topic and partly actively take the research into its own hands. After a phase of scandals there is the need to find out the extent, the procedures and the causes of the whole matter[10].

Thus it is obvious that the corruption scandals usually involve in the first place the corruptive practices of high-profiled actors being unravelled, which would soon become a snowball-effect of smaller scandals within the net being unravelled one after another. These latter scandals could be the smaller aforementioned type of corruption “petty corruption” and/or also “influence peddling”[11].

The types of corruption involved in such scandals often are very extensive. Easiest to define as corruption is the act of bribery. Be it in sum of money, a return service[12], a gift or ‘baksheesh’, etc., it is still bribery. Yet it is rather difficult to pinpoint the exact limit to such acts: how big should a gift be so that it can be categorised under the term ‘bribery’? Such is a separate case to be dealt with, which can involve cultural aspects of some countries and their views of the world[13].

One of the many widespread forms of corruption in international business transactions is “Black checkouts” (“Schwarze Kassen”). They are a form of money laundering used by enterprises. These “black checkouts” are established to serve as secret reserves of money for bribery. These reserves are usually hidden in different bank accounts in foreign countries, out of reach of national inspections[14].

The extent of the net, where bribery can be put to use, is enormous. The seam between administrative authorities and externs is one of the most susceptible to corruption. In his “chronique scandaleuse”, Wolfgang J. Schaupensteiner listed an A-to-Z list of the weak spots for corruptive activities[15]. It is extremely worrisome to see how extensive corruption has spread itself to nowadays. The already made-known cases of corruption that reach the public are only just the top of the iceberg which reaches long and deep into the bottom of the ocean of corruption. The types of corruption in international business transactions is a net of networks of bribery, money laundering, kick-backs, etc., of almost unreachable extensiveness. In the next section, further types of corruption in international business transactions will be mentioned as well as the causes of corruption, actors involved in it and effects on the global economy caused by it.


[1] cf: Schaupensteiner, Wolfgang J.: “Korruption in Deutschland – Das Ende der Tabuisierung” in: Pieth, Mark; Eigen, Peter (eds.): “Korruption im internationalen Geschäftsverkehr: Bestandsaufnahme, Bekämpfung, Prävention”, Hermann Luchterhand Verlag GmbH, Neuwied, Kriftel, Germany, 1999, p. 135

[2] Considering giving your school friend a couple of bucks, so that he would let you copy his homework. Or even bullying someone for the same result!

[3] Kotler, Philip: “Marketing concepts and tools: Core marketing concepts” under “Marketing in the Twenty-First Century” in Kotler, Philip: “Marketing management (international edition) – The Millennium Edition”, Prentice Hall International, Inc., New Jersey, U.S.A. 2000, pp. 11-12

[4] For a closer look into the meaning of corruption and the (analytical) models: Jain, Arvind K.: “Models of corruption” in: Jain, Arvind K. (ed.): “Economics of corruption”, Kluwer Academic Publishers: Boston, Dordrecht, London, 1998, pp. 1-34; and cf. Gardiner, John: “Defining Corruption” in: Heidenheimer, Arnold and Michael Johnston (eds.): “Political Corruption – Concepts and contexts”, 3rd Edition, New Brunswick and Oxford: Transaction, 2001, pp. 25-40

[5] Senturia, J.A. in: Nohlen, Dieter (ed.): “Kleines Lexikon der Politik”, Bech’sche Reihe des C.H. Becks, Munich 2001, p. 267

[6] Elliot, Kimberly Ann: “Corruption as an International Policy Problem: Overview and Recommendations” in: Elliot, Kimberly Ann (ed.): “Corruption and the Global Economy”, Institute for International Economics, Washington, DC, U.S.A. June 1997, p.178

[7] Ibid.

[8] Rose-Ackerman, Susan: “Globale Wirtschaft und Korruption” in: ibid. at 1, pp. 40-55

[9] A very anecdotal story is retold by the French freelanced journalist Julien Caumer in a chapter in his book: Caumer, Julien: “Le plus beau coup d’Elf: Au credit de Léandri” in: Caumer, Julien: “Les requins: Un réseau au cœur des affaires”, Edition Flammrion by Bussière Camedan Imprimeries, Sainte-Amand-Montrond, France, 1999, pp. 124-133; and cf. Hodess, Robin et al. (eds.): “Transparency International: Global Corruption Report 2001”, Transparency International, Berlin, Germany, 2001, pp. 138-151

[10] Pieth, Mark: “Formen und Verbreitung der internationalen Korruption – Einleitung” in: ibid. at 1, pp. 127-128

[11] “Influence peddling” usually involves private actors and elected officials and politicians: cf.: ibid. at 6

[12] „Gegenleistung“

[13] cf. : Wei, Shang-Jin: “Corruption in Economic Development: Beneficial Grease, Minor Annoyance, or Major Obstacle?”, discussion paper for the Workshop on Integrity in Governance in Asia, Bangkok, June 19th-July 1st, 1998, pp. 14-16

[14] Colombo, Gherardo: “Die Rolle der schwarzen Kassen in der Vorbereitung eines Bestechungssystem” in: ibid at 1, pp. 148-156

[15] Schaupensteiner, Wolfgang J.: “Korruption in Deutschland – Das Ende der Tabuisierung” in: ibid. at 1, pp. 131-147


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Title: Corruption in international business transactions