Stop turning a blind eye

Observations on corruption

When Jarvis, the rail maintenance firm, announced that it would be paying £807,000 in directors' bonuses for the year of the Potters Bar train crash, it was one more in a very long line of companies cocking a snook.

Since Enron unleashed the flood, we have had WorldCom in the US, found to have fraudulently disguised £2.1bn in expenses; and Parmalat, the Italian food group, bankrupted when a phantom offshore bank account, set up by an offshoot and purporting to contain £2.8bn, was shown to be fictitious. We have seen Royal Ahold in the Netherlands, the world's third-biggest food retailer, overstate its profits by more than £675m, while Shell overstated its oil and gas reserves by up to 25 per cent, thereby inflating its share price. And current Ministry of Defence files reveal that the DESO, the British government's arms export body, officially authorises "special commissions" (otherwise known as bribes) paid by arms firms.

Are commercial firms sufficiently held to account? And what changes in the regulatory framework could prevent similar scandals in future?

In the UK, the authorities do not, in general, pursue allegations of corruption; nor do we have a culture of systematic legal redress. The holes in the Organisation for Economic Co-operation and Development's anti-bribery convention are big enough for an elephant to wander through: companies are not held responsible for the actions of their subsidiaries or agents. The arms contractor BAE Systems is known to have secretly shifted files to Geneva in 1997 detailing payments to agents, civil servants and foreign politicians: yet even after the UK legislated against bribery of public officials, no action was taken.

Corporate damage to the environment enjoys similar impunity. A decade ago, $5bn was awarded against Exxon for the Valdez disaster that covered 1,300 miles of Alaska's shoreline with oily sludge. ExxonMobil has paid for some of the clean-up, but not the fine. Between 1976 and 1991, Shell was responsible for 2,976 oil spills in Nigeria, yet has largely refused to clean up properly or pay compensation. (This despite Shell having admitted to making illegal payments to Nigerian officials of £1.2bn in total.)

Illegal logging and deforestation on a huge scale, particularly in the tropics, are often the result of collusion between big companies and corrupt governments. Since the 1984 Bhopal disaster that killed up to 20,000 people in India, Union Carbide has denied access to the gas-leak data.

So what should be done? First, international regulations, especially the OECD convention outlawing bribery, should be amended to make all multinational companies legally responsible for the actions of their agents or subsidiaries abroad.

Second, most European countries have codes of practice for corporate governance. To be effective, such codes must receive legal backing.

Third, the relationship between companies and their regulators is too cosy. The Food Standards Agency is too ready to condone practices in food manufacturing and the World Health Organisation has been infiltrated by the food industry, as by the tobacco industry in the past. A light regulatory approach in the City led to the mis-selling of private pensions, problems with endowment mortgages, and the disaster of Equitable Life. Export credit agencies are inclined to turn a blind eye to bribery if that will win big contracts.

If corporate accountability is to mean anything, we need the regulators to get tough with companies.