European Journal of Law and Economics

, Volume 35, Issue 3, pp 349–366 | Cite as

Corrupt intermediaries in international business transactions: between make, buy and reform

Article

Abstract

Attempts to deter corruption have little recognized the operation of intermediaries. This study takes a New Institutional Economic-perspective, supported by a variety of case studies, to identify firms’ choices of when to engage corrupt intermediaries (buy) and how to approach reform. It argues that firms should be held unbendingly liable for the operation of their intermediaries. Reform may also focus on certifying “good” intermediaries and holding the certifier liable for the performance of its agents. Prohibiting intermediaries is not advisable, as intermediation can be either arranged in-house (make) or mixed with legal services. Registration and auditing of intermediaries provides a more promising avenue for reform. Legislators should balance the additional regulatory burden by granting a wage premium to registered intermediaries and denying legal recourse to unregistered competitors.

Keywords

Trust Opportunism Enforcement Liability Regulation Vertical integration 

JEL Classification

L14 K42 

References

  1. Aburish, S. (1985). Pay-off. Wheeling and dealing in the Arab world. London: André Deutsch Ltd.Google Scholar
  2. Ahn, J., Khandelwal, A., & Wei, S. -J. (2010), The role of intermediaries in facilitating trade. NBER Working Paper 15706.Google Scholar
  3. Bedi, R. (2000). India’s Bizarre Arms Procurement Policy. Economic and Political Weekly, 35(42), 3716–3719.Google Scholar
  4. Bray, J. (2005). The use of intermediaries and other ‘alternatives’ to bribery. In J. Graf Lambsdorff, M. Schramm, & M. Taube (Eds.), The new institutional economics of corruptionnorms, trust, and reciprocity (pp. 112–137). London: Routledge.Google Scholar
  5. Campos, N., Estrin, S., & Proto, E. (2010). Corruption as a barrier to entry: Theory and evidence. CEPR Discussion Paper 8061.Google Scholar
  6. Cuervo-Cazurra, A. (2008). The effectiveness of laws against bribery abroad. Journal of International Business Studies, 39(4), 634–651.CrossRefGoogle Scholar
  7. Darroch, F. (2004). At Goliath’s feet: the Lesotho corruption and bribery trials. Paper delivered to the Institute for Security Studies (ISS) seminar held in Gauteng, South Africa, 15 March 2004. Online retrievable at http://www.odiousdebts.org/odiousdebts/publications/Gauteng.pdf (Accessed 30 March 2010).
  8. Darroch, F. (2005). Case study: Lesotho puts international business in the dock. Global Corruption Report (pp. 31–35). London: Pluto Press, Transparency International.Google Scholar
  9. Della Porta, D., & Vannucci, A. (1999). Corrupt exchanges: Actors, resources, and mechanisms of political corruption. New York: De Gruyter.Google Scholar
  10. Greif, A. (1993). Contract enforceability and economic institutions in early trade: The Maghribi traders’ coalition. The American Economic Review, 83(3), 525–548.Google Scholar
  11. Habib, M., & Zurawicki, L. (2002), Corruption and foreign direct investment. Journal of International Business Studies, 33(2), 291–307.CrossRefGoogle Scholar
  12. Hasker, K., & Okten, C. (2008). Intermediaries and corruption. Journal of Economic Behavior & Organization, 67(1), 103–115.CrossRefGoogle Scholar
  13. Joly, E. (2006). Justice under siege. London, UK: Arcadia Books.Google Scholar
  14. Krawiec, K. (2005). Organizational misconduct: Beyond the principal-agent model. Florida State University Law Review, 32, 571–615.Google Scholar
  15. Lambert-Mogiliansky, A., Majumdar, M., & Radner, R. (2007). Strategic analysis of petty corruption: Entrepreneurs and bureaucrats. Journal of Development Economics, 83(2), 351–367.CrossRefGoogle Scholar
  16. Lambsdorff, J. (2007). The new institutional economics of corruption and reform: Theory, policy, and evidence. Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
  17. Lambsdorff, J. (2009). The organization of anticorruption—getting incentives right. In R. Rotberg (Ed.), Corruption, global security, and world order (pp. 389–415). Washington DC: Harvard Kennedy School und the Brookings Institution Press.Google Scholar
  18. Laufer, W. (2006). Corporate bodies and guilty minds: The failure of corporate criminal liability. Chicago: The University of Chicago Press.CrossRefGoogle Scholar
  19. Moody-Stuart, G. (1997). Grand corruption. How business bribes damage developing countries. Oxford, UK: WorldView Publishing.Google Scholar
  20. Moran, T. (2006). How multinational investors evade developed country laws. Center for Global Development Working Paper No. 79, online retrievable at http://www.cgdev.org/files/6113_file_WP_79.pdf (Accessed 7 April 2010).
  21. O’Gara, J. (2004). Corporate fraud: Case studies in detection and prevention. Hoboken, NJ: Wiley.Google Scholar
  22. Oldenburg, P. (1987). Middlemen in third world corruption: Implications of an Indian case. World Politics, 39(4), 508–535.CrossRefGoogle Scholar
  23. Peng, M., & York, A. (2001). Behind intermediary performance in export trade: Transactions, agents, and resources. Journal of International Business Studies, 32(2), 327–346.CrossRefGoogle Scholar
  24. Rauch, J., & Watson, J. (2004). Network intermediaries in international trade. Journal of Economics & Management Strategy, 13(1), 69–93.CrossRefGoogle Scholar
  25. Rose-Ackerman, S. (1978). Corruption–A study in political economy. London, UK: Academic Press.Google Scholar
  26. Sayed, A. (2004). Corruption in international trade and commercial arbitration. The Hague, Netherlands: Kluwer Law International.Google Scholar
  27. Seubert, R. (2006). Three essays on intermediaries in corporate corruption. Passau University, PhD-thesis.Google Scholar
  28. Shearman & Sterling. (2009). FCPA Digest. Cases and Review Releases Relating to Bribes to Foreign Officials under the Foreign Corrupt Practices Act of 1977. Shearman & Sterling LLP, New York, online retrievable at http://www.shearman.com/files/upload/fcpa_digest.pdf (Accessed 30 March 2010).
  29. Stansbury, N. (2005). Exposing the foundations of corruption in construction. Global Corruption Report (pp. 36–50). London: Pluto Press, Transparency International.Google Scholar
  30. Strausz, R. (2005). Honest certification and the threat of capture. International Journal of Industrial Organization, 23(1–2), 45–62.CrossRefGoogle Scholar
  31. Uhlenbruck, K., Rodriguez, P., Doh, J., & Eden, L. (2006). The impact of corruption on entry strategy: Evidence from telecommunication projects in emerging economies. Organization Science, 17(3), 402–414.CrossRefGoogle Scholar
  32. Vanucci, A. (2001). Corruption, political parties, and political protection. European University Institute Working Paper 2000/62.Google Scholar
  33. Zerbes, I. (2007). Article 1. The offence of bribery of foreign public officials. In M. Pieth, L. A. Low, & P. J. Cullen (Eds.), The OECD convention on bribery (pp. 45–172). Cambridge UK: Cambridge University Press.Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.University of PassauPassauGermany

Personalised recommendations