With middlemen diverting cash into the Swiss bank accounts of a corrupt southern African official, the Lesotho Highlands Water project epitomizes graft in international construction. Continuing court activity this month and next will ensure that Lesotho remains a symbol of international construction’s murky side and may help clean up the industry globally.

In Lesotho, a former government project director of the multibillion dollar Highland’s dam and tunnel scheme is entering his second year in prison. He will stay there until 2020, barring parole. A key middleman died before facing the law and another local consultant pleaded guilty a few weeks ago. Two international design firms have been found guilty of bribery and a leading French contractor faces trial. More actions may follow.

Uncovered Lesotho dam and tunnel project became a symbol of construction corruption. (Photo courtesy of Michael Dam Constructors)

The eruption of activity in Lesotho has become a "landmark" for growing intolerance to corruption, says Neil Stansbury, a British lawyer with long construction experience. "I think we are going to start to see more publicity around global corruption," adds Tony Boswell, the Houston, Texas-based senior vice president of global ethics for AMEC plc, London.

By taking on international companies and their teams of lawyers, Lesotho earned star billing at the high-level eleventh International Anti-Corruption Conference in South Korea in late May. The government wanted to "set an example for other countries," said Lesotho Attorney General Fine Maem.

Across the globe in London, a number of top international contractors met confidentially under the auspices of the independent anti-corruption body Transparency International, based in Berlin and having national chapters in over 80 countries. Attendees included AMEC and reportedly executives of U.S.-based Bechtel Inc., Halliburton Inc. and others. An initiative to clean up construction is likely, says Stansbury.

The task will not be easy. Of all major industries, international construction is the one indulging in "the most flagrant corruption," says TI. It financed a survey last year of over 800 people in 15 emerging economies that identified construction as the most likely of 17 industries to bribe, as well as the industry dealing in the biggest bribes.

Construction also ranks as a corruption leader in a survey of executives by Control Risks Group, a London-based business security consultant.

TI has compiled a corruption index for countries based on 15 surveys and polls by nine organizations that asked business people, country analysts and residents about their perceptions of corruption (see table) Bangladesh and Nigeria are the most corrupt, according to TI.

Among bigger international players, companies from Russia and China were found to bribe "on an exceptional and intolerable scale," with Taiwanese and South Koreans following closely behind, says CRG.

Despite having the oldest law criminalizing corruption abroad, U.S. firms were found to "have a high propensity to pay bribes to foreign government officials," on par with Japanese companies, says TI. Firms from France, Spain, Germany, Singapore and the U.K. were cleaner. And those from Australia, Sweden, Swit-zerland, Austria, Canada, the Netherlands and Belgium were least likely to bribe, says TI.

Among more corrupt regions, the former Communist Europe and Soviet Union remain prominent, according to a survey by the European Bank for Reconstruction and Development and the World Bank. It found "bribe taxes" exceeding 3% of company sales, with corruption most widespread in Russia. "I’ve heard stories [in Eastern Europe] of people who wanted to do business on the straight and narrow but [who] were forced out of the market," says Michael Mix, infrastructure business development manager at Bechtel Ltd., London.

In Asia, Indonesia remains notorious for corruption, according to a new survey of 1,000 expatriates by Hong Kong-based Political and Economic Risk Consultancy Ltd. India ranked almost as bad, followed by Vietnam, Thailand, China, The Philippines, Taiwan, Malaysia and South Korea. Singapore emerged as the cleanest country, ahead of Australia and the U.S.

Corruption is more than "brown envelopes paid to a civil servant," says Jean Pierre Méan, EBRD’s chief compliance officer. "In a certain Western European city, there was an apartment made available to civil servants on an hourly basis," he says.

But incidents witnessed by Stansbury during 20 years as an international construction lawyer involved intermediaries. Commonly, a person claiming influential contacts would emerge, offering help with a bid for a fee. "Ten to twenty million dollars is not surprising," says Stansbury.

Using such "middlemen" is a practice the construction industry, "in particular," has tolerated, says John Bray, CRG’s Tokyo-based director. "There has been reluctance to address that."

Crooked middlemen were at the heart of the Lesotho case, climaxing with last year’s trial and sentencing of the Highlands Development Authority’s chief executive, Masupha Sole. He was found guilty of taking bribes from intermediaries of international firms. The representative agreements "were nothing more than bribe agreements," says Maem.

Among the accused firms, Acres International Ltd., Oakville, Ontario, was fined $2.7-million last year. The result of its appeal is due in August. Germany’s Lahmeyer International GmbH, Bad Vilbel, was found guilty in May and is due for sentencing in July. Paris-based Spie Batignolles S.A., which led a contractors’ consortium, will be next on trial. The chances of a trial over the Katse Dam contract increased this June when Jacobus Michiel du Plooy pleaded guilty of bribing Sole, allegedly on behalf of Milan-based Impregilo SpA. The contractor says: "The new management, which took over in 1999, has no knowledge of facts and circumstances relating to unlawful acts allegedly committed in Lesotho."

Maem has found construction corruption difficult to unearth, but once found, "prosecuting it is not that difficult," he says.

With increasingly tougher laws around the world, more companies may find themselves in court. Over 30 countries in recent years have outlawed corruption in foreign markets. Most earlier laws criminalized domestic corruption, but the U.S. led in outlawing bribery overseas in 1977. The legal net will reach more globally with a proposed U.N. Convention against Corruption due for signing in December.

But law alone is not enough for Boswell, hired this year to improve AMEC’s ethics strategy. "This is a cultural issue....If [company] leaders do not establish the culture...the people are going to find ways around [the law]," he says. "What we need to do is train."

Bechtel seemingly is content with its strategy. Its guidance outlines the laws, urging staff to consult company lawyers before starting relationships with anyone "who might be considered to be a foreign official." Staff must get assurances that no inducements will be paid through foreign associates, whose appointments need senior approval. Staff must account for all payments they make, and whistleblowers have telephone help lines in 16 countries.

For less-sure companies, TI recently helped publish guidelines, Business Principles for Countering Bribery.

Voluntary pacts and codes are not enough, says Stansbury. "The export credit agencies need to start investigating," he says. With TI support, Stansbury will soon publish a report on the danger signs of corruption. Central to his recommendations will be a dramatic increase in government investigations, which "must be followed by prosecutions and imprisonment," he says. "It’s been a surprise to me...how prevalent corruption is and how accepted it is by people who would otherwise be reasonably moral."