A controversial recent proposal by India’s chief economic advisor Kaushik Basu to legitimize what he calls “harassment bribes” has parallels with related attempts in the U.S., Hong Kong, Russia and some OECD countries. Set against India’s current backdrop of a slew of public policy corruption scandals, Basu details his argument in a paper posted on the Indian finance ministry’s Web site, but written in his personal capacity. A Cornell professor of international studies and economics, Basu joined the Indian government last year on a sabbatical.

Basu seeks to defend those who have to give bribes to secure what is legitimately owed to them, such as a tax refund or subsidized land allotments under government programs. Such givers of “harassment bribes” should have “full immunity from any punitive action,” if they report the bribe with evidence, he says. He believes this will trigger “a sharp decline in the incidence of bribery,” as the bribe-taker knows he or she will be exposed and will therefore refrain from such activity.

Philip Nichols, Wharton professor of legal studies and business ethics feels Basu’s idea is “a brave and creative thought about a complicated and difficult social structure.” But for starters, he would like to separate petty corruption, where a bribe is given to secure “non-discretionary action” such as getting a license that a government bureaucrat is supposed to give anyway, from other types of bribe-giving where a bureaucrat has discretionary powers to, say, award a contract.

Nichols says some countries, including the U.S., do distinguish between bribes initiated by the bribe giver and bribes paid as a reaction to extortion. The first U.S. law criminalizing transnational bribery — the United States’ Foreign Corrupt Practices Act of 1977 — did not have an exception for petty corruption. “But U.S. businesses found it so difficult to transact business without paying petty bribes that the act was amended after a couple of years to except petty corruption,” he says.

Looking the Other Way

Nichols recounts other attempts in later years to condone specific types of corruption. The first international agreement requiring countries to criminalize transnational corruption – an Inter-American Convention against Corruption (1996) — did not create an exception for petty corruption, although “the United States wanted one.” The 34-member Organization of Economic Cooperation and Development (1997) left the issue alone because members could not agree.  Some OECD countries criminalize transnational petty corruption and some do not, Nichols notes. He also recalls Hong Kong in 1977 granting amnesty to all who had been involved in corruption in the past, specifically to free people from corrupt relationships. “In Hong Kong, it seemed to work pretty well … [but] there is a raging debate over whether that would work everywhere.”

Nichols acknowledges legitimizing bribe-giving creates an unjust society and make it a costlier place to do business. “If some corruption is countenanced, it weakens social and psychic control,” he says. “Some bribery in the United States Congress, for example, probably happens because corruption in the form of lobbying is legal.”

Not a bad idea, but…

Even so, Nichols says he actually likes Basu’s idea, so long as it is limited to extortive petty corruption, rather than any petty corruption.  Also, he wants to protect bribe givers only if they reported the corruption to a prosecuting agent if the bribe payer initiated qui tam litigation (where private citizens can file lawsuits in the name of the government). Alongside, he wants a program condemning petty corruption “and reminding society that it is wrong and it is extremely damaging.”

Thomas Donaldson, Wharton professor of legal studies and business ethics doesn’t like Basu’s idea one bit. Granted, laws in the U .S. and some OECD countries make exceptions for bribes home-based companies pay in other countries, he says. “But even if such exceptions are justified, they are very different from a government’s allowing ‘harassment bribes’ at home.”

Only “banana republics” would consider legislation of the type Basu proposes, according to Paramjit S. Bawa, chairman of Transparency International India. In its latest report, the Berlin-based watchdog ranks India 87th among 180 countries on transparency. He is convinced legitimizing bribery by the giver will in no way serve as a deterrent. “When both the giver and the taker are happy over a compromise, there is no possibility of the giver initiating action.”

Basu adds caveats to his proposal, admitting that it will not cause bribery to vanish altogether. It would not work with the so-called “serial bribe giver,” who regularly offers bribes to government officials; he will have to weigh the cost of his loss of his credibility among the officials with whom he interacts repeatedly. As it happens, India’s main anti-bribery law – the Prevention of Corruption Act of 1988 — exempts from prosecution those that are willing to testify with a statement that they offered or agreed to offer a bribe to a public servant. But Basu finds that exemption is flawed. It applies only if the bribe giver could establish that the bribe was given “unwillingly.” He wants to make a “much clearer statement” on the legality of the bribe giver’s action in the case of harassment bribes.

The idea of allowing harassment bribes “is ultimately wrong-headed,” according to Donaldson, who also heads Wharton’s Zicklin Center for Business Ethics. “The dark dance of bribery requires two partners. If one refuses, the dance must stop.,” he says. “By exempting harassment bribes, a government emboldens one partner in the bribery dance.  Sadly, when that happens, the economy dances to bribery’s tune.”