The British Dilemma


‘The grip of corruption continues unabated and has the whole economy by the throat’. This bleak diagnosis does not come from a raving protester but from the President of Russia Dmitry Medvedev - which makes it scarier and gloomier.

If Russians can’t find a medicine for the malady, perhaps a cure could come from abroad? The UK Bribery Act seems to be just that, a helping hand from Her Majesty’s Government in levelling the playing field for all, the Russians and the foreigners. This magazine agrees that Russia needs help. Unfortunately, the well-meaning law won’t do the trick but will make the life of British business difficult. Yet in the end it will help Russians realise that no one but themselves can find a way out of their plight.

When we are abroad we adjust our way of life to myriad peculiarities. Corruption is one of them. When in Rome, do as the Romans do. The old adage was true until very recently: in many European countries bribing foreign officials was legal until the late 1990s. Some states even subsidised overseas venality by deducting kickbacks from taxable income.

Today we believe that Western business must set an example of fair play and raise the bar far above local realities.

The UK Bribery Act, ‘the toughest anti-corruption legislation in the world’ as it has been dubbed, doesn’t ban corruption. It’s been done already. When a Brit pays a bribe, he commits a crime at home as much as in Russia.

The law seeks to punish those who do business in such a way that corruption becomes possible. It extends the grip of prosecution beyond the company’s borders and holds you liable for fraud committed by others. The idea is to bring about a system when companies check on each other, so shadiness within the trade is fought by the trade.

This is indeed an ingenious plan. If it works, corruption is doomed.

Bribery can be described in terms of the prisoner’s dilemma, a problem studied in the game theory, a mixture of mathematics, economics and psychology.

Let’s imagine two accomplices arrested for theft. They are put in different rooms and offered the same choice: if both confess, each will be sentenced to five years in prison; if one talks and the other doesn’t, the first will walk free and the second will stay for another ten years; and if they remain silent, each will serve one year for a minor offence.

No matter what your accomplice does, you had better betray him. Yet your dream scenario is when he keeps his mouth shut and you talk. (Alas, this train of thought is true for the other prisoner too, so they both confess and end up with five years imprisonment.)

Your dream scenario is when they abide by the rules and you don't

In a corruption situation, a businessman - put into the prisoner’s dilemma - will be tempted to give a bribe unless he knows that the powerful and effective machinery called criminal justice is likely to punish the felon. When such mechanism fails the principle that only a fool does not cheat becomes the rule.

The Bribery Act will create a group of companies in Russia under a stricter control than the rest of the market. This will work if the companies within the group compete only with each other. Otherwise, those who do not come under the regulation will get a free ride at the expense of those who do.

The problem of a group for the common good is that it creates the temptation of harvesting the fruits while others will bear the costs. What the authorities both in Russia and the UK should be doing is increasing the gap as far as possible between the benefit of joining the club and following the rules and that of staying out.

In recently published guidelines the British government did the opposite. It suggested that companies with subsidiaries or listings in the UK may not be impacted. Instead of implementing a regime similar to that of the Bribery Act for all companies in Russia, the Kremlin keeps talking about tougher punishments to bribe-takers, a noisy rattling of rusty sabres which scares no one.

None of the managers we spoke to expect their companies to give preference to an entity from the UK or the USA, countries with strict anti-corruption regulation.

Despite attempts of the UK’s Ministry of Justice to back pedal on the act, its inner logic implies that courts in Britain will be tough on defectors. Numerous researches, on the other hand, demonstrate that businesses reduce their presence in the places where anti-corruption policy lags behind those at home.

The point of the UK Bribery Act, then, is not to help Russia or other developing countries to fight corruption but to send a message to British business to step aside until the Russians build a better, fairer market. A noble move indeed.

picture: hellotim -
text: J. Vermin



The UK Bribery Act will work, but not here and not now