Public Sector Governance

Anti-Corruption Conventions

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• Disappointing Progress at OECD Convention Enforcement, Reports TI
• Group of 20 Issues Anti-Corruption Action Plan at Seoul Summit
• OECD Makes Major New Recommendations for Anti-Bribery Strengthening
• UNCAC Key Meeting Fails to Secure Monitoring System
• UN Global Compact Moves Ahead on Anti-Corruption
• OECD Calls for New UK Laws
• The UN Global Compact Delists 630 Companies
• TI Assesses Countries' Progress on the Enforcement of the OECD Anti-Bribery Convention
• Supply-Side Corruption: Perspectives on a Trillion-Dollar Problem
• Transparency International Sees UN Anti-Corruption Conference as 'Major Setback'
• Transparency International OECD Convention Progress Report
• Building Support in Nigeria for the UN Convention Against Corruption and the AU Convention
• British Government Excuses Come Up Empty
• OECD to Deter Bribery in Export Credits
• OECD Anti-Corruption Convention, U.S. Foreign Corrupt Practices Act
• UN Convention Against Corruption
• Corruption in Latin America
  
  

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The TI Progress Report on Enforcement of the OECD Convention covering 37 countries, shows that there are still only seven countries with active enforcement, nine with moderate enforcement, and 21 with little or no enforcement.

This is the first time in the seven years TI has been reporting on the OECD anti-bribery Convention that no progress has been made in the number of countries enforcing the Convention’s prohibition against foreign bribery.  TI’s findings are consistent with the OECD’s own review, which reported that only five parties to the Convention sanctioned individuals or companies in the past year.

 Major findings

1.  Active Enforcement: Seven countries: Denmark, Germany, Italy, Norway, Switzerland, United Kingdom and United States.
   
   
2. Moderate Enforcement: Nine countries: Argentina, Belgium, Finland, France, Japan, Korea (South), Netherlands, Spain and Sweden.
   
   
3. Little or No Enforcement: 21 countries: Australia, Austria, Brazil, Bulgaria, Canada, Chile, Czech Republic, Estonia, Greece, Hungary, Ireland, Israel, Luxembourg, Mexico, New Zealand, Poland, Portugal, Slovak Republic, Slovenia, South Africa and Turkey

Major conclusions

No overall progress in last year: There has been no progress since TI’s 2010 progress report in the number of countries with active enforcement, which remains at seven; or those with moderate enforcement, which remains at nine. There is little or no enforcement in twenty-one countries. All of the countries have remained in the same category as reported in 2010. When compared with the record of improving enforcement recorded in TI’s six prior reports, the lack of progress in 2010 is disappointing and raises concern that the Convention may be losing momentum. It is particularly disturbing that there are still twenty-one countries with little or no enforcement a decade after the Convention entered into force.

Risk of loss of momentum: The Convention has not yet reached the point at which the prohibition of foreign bribery is consistently enforced. With little or no enforcement by half of the signatory governments, backsliding by enforcing governments is a serious threat. This concern is aggravated in a troubled global economy in which companies are scrambling for business. Business organisations have increasingly criticised anti-bribery enforcement as a competitive obstacle. The present position of the Convention is unstable, and unless forward momentum is recovered, the progress made in the past decade could unravel.

Lack of political commitment: Reviews conducted by TI experts indicate that the principal cause of lagging enforcement is lack of political commitment by government leaders. In countries where there is committed political leadership, the OECD’s rigorous monitoring programme has helped improve laws and enforcement programmes. However, in the absence of political will, even repeated OECD reviews have little effect.

• Major recommendations
  
  High-level political action is necessary to strengthen enforcement: Overcoming the lack of political commitment requires action at a higher political level than can be reached by the Working Group reports. This will require the active involvement of the OECD Ministerial Council, the Secretary-General, and government leaders as well as CEOs from countries committed to enforcement.
  
  Twelve-month action programme: The OECD Ministerial on 25-26 May 2011 should launch a programme to strengthen enforcement of the Convention by laggard governments consisting of the following steps:
  Governments with lagging enforcement should promptly prepare plans for strengthening enforcement and a timetable for such action.
  
  The Secretary-General and the Chairman of the Working Group on Bribery should meet with top leaders of governments with lagging enforcement to review plans and timetable for strengthening enforcement.
  A full review of the status of foreign bribery enforcement should take place at the May 2012 Ministerial.
  
  The Working Group on Bribery should publish a list of governments with lagging enforcement. This would make clear that a higher level of due diligence is needed to do business with companies based in these countries.
  Posted 05/26/2011

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Group of 20 Anti-Corruption Action Plan

Major support given to the United Nations Convention

The “G20 Anti-Corruption Action Plan” agreed in Seoul represents a major advance in the global fight against corruption. The test is whether the world’s leaders will act on their pledges. Civil society anti-corruption action groups agreed today to monitor progress publicly (see Transparency International press release).

The Action Plan calls for effective implementation of the United Nations Convention against Corruption (UNCAC), enforcement of laws against foreign bribery, international cooperation in preventing illicit flows into G20 financial markets, tracing and recovering stolen assets and for the protection of whistleblowers, which have long been key requests from civil society and anti-corruption fighters.

Huguette Labelle, Chair of Transparency International (TI) stated, “The G20 itself acknowledged that the global financial crisis will push an additional 64 million people into extreme poverty (living on less than $1.25 per day) by the end of 2010. A key cause of this massive human misery – and of the financial crisis itself – is corruption.”

TI’s Chair added, ”The G20 Action Plan is the very first of its kind ever issued by a G8 or G20 Summit and is a significant response to today’s crisis. It builds on the acceptance of and the determined implementation of the United National Convention against Corruption.”

Excerpt from the G-20 Releases Detailed Statement, Seoul, South Korea, November 12, 2010.

Anti-Corruption
69. Recognizing that corruption is a severe impediment to economic growth and development, we endorse the G20 Anti-Corruption Action Plan (Annex III). Building on previous declarations, and cognizant of our role as leaders of major trading nations, we recognize a special responsibility to prevent and tackle corruption and commit to supporting a common approach to building an effective global anti-corruption regime.

70. In this regard, we will lead by example in key areas as detailed in the Anti-Corruption Action Plan, including: to accede or ratify and effectively implement the UN Convention against Corruption and promote a transparent and inclusive review process; adopt and enforce laws against the bribery of foreign public officials; prevent access of corrupt officials to the global financial system; consider a cooperative framework for the denial of entry to corrupt officials, extradition, and asset recovery; protect whistleblowers; safeguard anticorruption bodies. We are also committed to undertake a dedicated effort to encourage public-private partnerships to tackle corruption and to engage the private sector in the fight against corruption, with a view to promoting propriety, integrity and transparency in the conduct of business affairs, as well as in the
public sector.

71. The G20 will hold itself accountable for its commitments. Beyond our participation in existing mechanisms of peer review for international anti-corruption standards, we mandate the Anti-Corruption Working Group to submit annual reports on the implementation of our commitments to future Summits for the duration of the Anti- Corruption Action Plan.

G20 Action Plan (see Annex 111)

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New OECD Anti-Bribery Recommendations

In late November, 2009, the OECD Council released a report that includes recommendations which, when implemented, will increase sharply the pressures on governments and companies to curb corruption.

The actions itemized in the report will need to be fully and carefully assessed by all companies engaged in international trade, especially those that deal with foreign government officials. Further, there are explicit calls on governments to increase their efforts to enforce the OECD Anti-Bribery Convention. Actions to strengthen the Convention, such as banning facilitation payments, are included in the report.

On December 9, 2009, Angel Gurría, Secretary-General, OECD, noted in a speech in Washington DC stressed that, “Billions of dollars are still wasted every year on bribes. Indeed, surveys show that we have some major communication work to do. Many companies doing business abroad are still not fully aware of the OECD Anti-Bribery Convention or its implications for their business. That is why we are launching a drive to raise global awareness, so that companies know that they need to take effective measures to prevent foreign bribery by their employees and agents; and so that law enforcement authorities treat any cases of such bribery as a matter of priority.”

Mr. Gurría emphasized that the new Anti-Bribery Recommendation adopted by the OECD Council and all Parties to the Convention introduces new provisions for combating small facilitation payments, for protecting whistleblowers, and for improving lines of communication between public officials and law enforcement authorities. This new instrument complements the Convention. It improves our ability to prevent, detect and prosecute foreign bribery as a crime. It will make a real change.”  

He stressed, “Next year, the Parties to the Convention will start reporting on how they apply the Recommendation. Meanwhile, we are continuing to engage major emerging economies through regional anti-corruption programs spanning the globe. Already, along with the 30 OECD countries, Argentina, Brazil, Bulgaria, Chile, Estonia, Israel, Slovenia and South Africa have signed the Convention. Russia has officially requested to join. We are encouraging other countries to follow suit. The G20 Summit in Pittsburgh gave a big push to the Convention. G20 leaders have called on us to strengthen our efforts to have more countries signing.”

The OECD “Recommendation for Further Combating Bribery of Foreign Public Officials” reported on November 26, 2009, calls on the 38 State Parties to the OECD Anti-Bribery Convention to, inter alia:

• Ensure companies cannot avoid sanctions by using agents and intermediaries to bribe for them;
• Periodically review policies and approach on small facilitation payments. These are legal in some countries if the payment is made to a government employee to speed up an administrative process;
• Improve co-operation between countries on foreign bribery investigations and the seizure, confiscation and recovery of the proceeds of transnational bribery;
• Provide effective channels for reporting foreign bribery to law enforcement authorities and for protecting whistleblowers from retaliation; and
• Working more closely with the private sector to adopt more stringent internal controls, ethics and compliance programs and measures to prevent and detect bribery.

The OECD Working Group on Bribery will monitor countries’ progress in putting these measures in place from the beginning of 2010 as part of their quarterly peer-review meetings.

SOME OF THE DETAILED RECOMMENDATIONS

One section of the report recommends that each OECD member country take concrete and meaningful steps in conformity with its jurisdictional and other basic legal principles to examine or further examine the following areas:

i. awareness-raising initiatives in the public and private sector for the purpose of preventing and detecting foreign bribery;

ii. criminal laws and their application, in accordance with the OECD Anti Bribery Convention, as well as sections IV, V, VI and VII, and the Good Practice Guidance as set out in Annex I to this Recommendation;

iii. tax legislation, regulations and practice, to eliminate any indirect support of foreign bribery, in accordance with the 2009 Council Recommendation on Tax Measures for Further Combating Bribery of Foreign Public Officials in International Business Transactions, and section VIII of this Recommendation;

iv. provisions and measures to ensure the reporting of foreign bribery, in accordance with section IX of this Recommendation;

v. company and business accounting, external audit, as well as internal control, ethics, and compliance requirements and practices, in accordance with section X of this Recommendation;

vi. laws and regulations on banks and other financial institutions to ensure that adequate records would be kept and made available for inspection and investigation;

vii. public subsidies, licences, public procurement contracts, contracts funded by official development assistance, officially supported export credits, or other public advantages, so that advantages could be denied as a sanction for bribery in appropriate cases, and in accordance with sections XI and XII of this Recommendation;

viii. civil, commercial, and administrative laws and regulations, to combat foreign bribery; ix. international co-operation in investigations and other legal proceedings, in accordance with section XIII of this Recommendation.

FACILITATION PAYMENTS

The Council went on to recommend that, in view of the corrosive effect of small facilitation payments, particularly on sustainable economic development and the rule of law that Member countries should:

i. undertake to periodically review their policies and approach on small facilitation payments in order to effectively combat the phenomenon;

ii. encourage companies to prohibit or discourage the use of small facilitation payments in internal company controls, ethics and compliance programs or measures, recognizing that such payments are generally illegal in the countries where they are made, and must in all cases be accurately accounted for in such companies’ books and financial records.

The Council urges all countries to raise awareness of their public officials on their domestic bribery and solicitation laws with a view to stopping the solicitation and acceptance of small facilitation payments.

INDEPENDENT EXTERNAL AUDIT

i. Member countries should consider whether requirements on companies to submit to external audit are adequate;

ii. Member countries and professional associations should maintain adequate standards to ensure the independence of external auditors which permits them to provide an objective assessment of company accounts, financial statements and internal controls;

iii. Member countries should require the external auditor who discovers indications of a suspected act of bribery of a foreign public official to report this discovery to management and, as appropriate, to corporate monitoring bodies;

iv. Member countries should encourage companies that receive reports of suspected acts of bribery of foreign public officials from an external auditor to actively and effectively respond to such reports;

v. Member countries should consider requiring the external auditor to report suspected acts of bribery of foreign public officials to competent authorities independent of the company, such as law enforcement or regulatory authorities, and for those countries that permit such reporting, ensure that auditors making such reports reasonably and in good faith are protected from legal action.

KEY CORPORATE ACTIONS

The report said that OECD member countries should encourage:

i. companies to develop and adopt adequate internal controls, ethics and compliance programs or measures for the purpose of preventing and detecting foreign bribery;

ii. business associations and professional organizations, where appropriate, in their efforts to encourage and assist companies, in particular small and medium size enterprises, in developing internal controls, ethics, and compliance programs or measures for the purpose of preventing and detecting foreign bribery;

iii. company management to make statements in their annual reports or otherwise publicly disclose their internal controls, ethics and compliance programs or measures, including those which contribute to preventing and detecting bribery;

iv. the creation of monitoring bodies, independent of management, such as audit committees of boards of directors or of supervisory boards;

v. companies to provide channels for communication by, and protection of, persons not willing to violate professional standards or ethics under instructions or pressure from hierarchical superiors, as well as for persons willing to report breaches of the law or professional standards or ethics occurring within the company in good faith and on reasonable grounds, and should encourage companies to take appropriate action based on such reporting;

vi. their government agencies to consider, where international business transactions are concerned, and as appropriate, internal controls, ethics, and compliance programs or measures in their decisions to grant public advantages, including public subsidies, licenses, public procurement contracts, contracts funded by official development assistance, and officially supported export credits.

ENFORCEMENT

In an Annex to the report, the Council stressed that:

1. Member countries should be vigilant in ensuring that investigations and prosecutions of the bribery of foreign public officials in international business transactions are not influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved, in compliance with Article 5 of the OECD Anti Bribery Convention.

2. Complaints of bribery of foreign public officials should be seriously investigated and credible allegations assessed by competent authorities.

3. Member countries should provide adequate resources to law enforcement authorities so as to permit effective investigation and prosecution of bribery of foreign public officials in international business transactions.

Posted 10/01/2010

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Key Meeting on United Nations Convention against Corruption Fails to Determine Effective Monitoring Mechanism

Statement by Transparency International and Civil Society Coalition Partners

At the end of a week-long meeting, the Conference of State Parties to the UN Convention against Corruption in Doha has agreed a review mechanism that falls short of effectively tackling the devastating effects of corruption.

While acknowledging the importance of adopting a review mechanism, and the efforts of the many governments who are committed to the success of this Convention, the UNCAC Civil Society Coalition (Coalition) is disappointed that this mechanism does not adequately reflect transparency, inclusiveness and effectiveness as called for by the G-20 leaders in their September statement.

The Coalition had called for an effective review mechanism, which would have ensured governments fulfilled their obligations under the treaty. More specifically, the Coalition clearly called for full publication of country reports, meaningful participation of civil society organizations, and in-country review visits.

The adopted mechanism has only made non-mandatory provisions for governments to receive input from civil society, instead of ensuring that these inputs are given to independent reviewers.

Going forward, the Coalition expects most governments will permit country visits and the publication of reports. Civil society must continue to press their governments to fulfill their obligations under the Convention. Opting out sends a strong signal of lack of transparency and accountability, and puts the spotlight on those who choose to opt out.

On the implementation review group, instead of an effective review body, it provides for a group of unlimited size which could prove unmanageable. In addition the group will not be reviewing country reports.

The Conference also adopted a weak statement on asset recovery that failed to advance key issues. It did not press signatories to comply with Convention mandates on misuse of corporate vehicles, and non-conviction based asset seizure.

The Coalition will continue to monitor the situation very closely, in order to ensure that UNCAC lives up to its potential to become a global framework for overcoming the devastating effects of corruption.

Posted 11/17/2009

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Global Compact Steps Up Anti-Corruption Efforts

- New Sub-Working Groups To Address Reporting and Supply-Chain Management -

The United Nations Global Compact, in collaboration with a broad alliance of business participants and other stakeholders, has stepped up efforts to advance awareness and implementation of its tenth principle on anti-corruption.

The integration of anti-corruption into the corporate responsibility agenda has sent a strong worldwide signal that business shares responsibility for the challenges of eliminating corruption. Yet, the issue still presents one of the most difficult implementation challenges.

To further advance the anti-corruption agenda, the Global Compact Working Group on Anti-Corruption, has established several sub-working groups to address implementation gaps, improve reporting and to better disseminate information on available tools and resources. Two of these sub-working groups – the Task force on 10th Principle Reporting and the Task Force on the Supply Chain: MNCs HQ to Subsidiaries, Suppliers and Subcontractors – met in Athens on in early November on the occasion of Transparency International’s 13th Annual Anti-Corruption Conference.

Task force on 10th Principle Reporting
The task force on 10th Principle Reporting will aim to mainstream the reporting of companies’n anticorruption efforts in non-financial and/or sustainability reports. Its chief responsibilities include elaborating and promoting the benefits of reporting on companies’ implementation efforts on the tenth principle; collecting and showcasing companies’ positive experience of reporting on anti-corruption; benchmarking how environment issues have been mainstreamed within CSR reporting; and developing a set of anti-corruption indicators that can be used both in common law and continental law systems.

“The fight against corruption is an ongoing process which needs dedication and support”, said Eckart Suenner, Chief Compliance Officer at BASF. “To report on progress in that fight means that you not only look back and report what has been done but that you also become aware what else can - and should be - done in future. This is real value for the own path in the fight against corruption”.

MNCs HQ to Subsidiaries, Suppliers and Subcontractors
The sub-working group on MNC HQs to Subsidiaries, Suppliers and Subcontractors will identify how to ensure that the policies or practices of major MNC headquarters are applied to their subsidiaries, suppliers, and subcontractors for the effective implementation of the 10th principle. This sub-working group will also serve as the collective action platform for small and medium-size enterprises.

“Multi-national companies face significant corruption risks in their supply chains, where many small and medium size local businesses may be unable or unwilling to avoid temptations to corruption”, said Mark Snyderman, Chief Ethics and Compliance Officer & Assistant General Counsel, The Coca-Cola Company. “MNCs are uniquely positioned to educate, help and direct these suppliers in dealing with corruption”.
In addition, the following sub-working groups have been established:

Anti-Corruption Education Initiative
In collaboration with Principles for Responsible Management Education (PRME), the Anti-Corruption Education Initiative aims to promote the integration of anti-corruption and ethics courses into the curriculum of business schools.

Anti-Corruption Tools and Resources
The sub-working group on Anti-Corruption Tools and Resources will develop an inventory of existing anti-corruption tools and resources that companies can easily review and access. The inventory will include a short description of each tool including purpose; the types of corruption the tool addresses; target audiences; and how the tool is related to different socio-political realities.

Multi-Stakeholder Dialogue Networks Initiative
In an effort to promote public-private partnership on anti-corruption issues, the Dialogue Initiative will aim to expand multi-stakeholder dialogue networks to the local level involving public counterparts. At the initial stage, these dialogue networks will serve to foster trusts among different stakeholders. Eventually, the Dialogue Initiative may lead into the development of a joint training session which involves public procurement actors and bidding companies on transparency and anticorruption in selected countries.

CEO Statement Initiative
The CEO Statement Initiative will develop a CEO statement addressed to governments on the implementation of an effective UN Convention Against Corruption (UNCAC) review mechanism. Through the endorsement by business leaders, the CEO Statement Initiative aims to increase business awareness on UNCAC and promote good practices.

Media Engagement Initiative
As an ongoing project, the Media Engagement Initiative will identify the ways to induce more positive engagement of the media on companies’ anti-corruption efforts. It specifically aims to bring media’s attention to positive stories and progress that business has made in the fight against corruption.

“Widespread corruption is a cross-cutting challenge to the advancement of the Global Compact’s ten principles”, said Georg Kell, Executive Director of the UN Global Compact. “ The important work of the Global Compact Working Group on Anti-Corruption will give practical meaning to the tenth principle and help companies develop effective policies and practices that ultimately benefit all their efforts at becoming more sustainable”.

Posted 11/24/2008

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OECD Group demands rapid UK action to enact adequate anti-bribery laws

Major OECD report stimulated by UK's decisionm to quwash investigations into alleged bribery by BAE Systems, calls for radical overhaul of UK law. The OECD's Working Group on Bribery sharply criticised the United Kingdom’s failure to bring its anti-bribery laws into line with its international obligations under the OECD Anti-Bribery Convention and urged the rapid introduction of new legislation.

Current UK legislation makes it very difficult for prosecutors to bring an effective case against a company for alleged bribery offenses. Although the UK ratified the OECD Anti-Bribery Convention 10 years ago, it has so far failed to successfully prosecute any bribery case against a company.

The OECD Working Group, which brings together all 37 countries that are parties to the OECD Anti-Bribery Convention

RECOMMENDATIONS OF THE WORKING GROUP AND FOLLOW UP

The Working Group is disappointed and seriously concerned with the unsatisfactory implementation of the Convention by the UK. The continued failure of the UK to address deficiencies in its laws on bribery of foreign public officials and on corporate liability for foreign bribery has hindered investigations. The Working Group reiterates its previous 2003, 2005 and 2007 recommendations that the UK enact new foreign bribery legislation at the earliest possible date.

The Group also strongly regrets the uncertainty about the UK‘s commitment to establish an effective corporate liability regime in accordance with the Convention, as recommended in 2005, and urges the UK to adopt appropriate legislation as a matter of high priority. The Working Group recognises that the UK government has taken some measures to strengthen the fight against foreign bribery and notes a first conviction in September 2008 for foreign bribery in international business transactions. It also notes the recent UK anti-corruption strategy to improve and strengthen the UK‘s law and structures to tackle foreign bribery. Reforms are urgently needed and should be dealt with as a matter of political priority.

The Working Group understands that the Law Commission will deliver its final report in November 2008 and that the Government will publish a draft bill for pre-legislative scrutiny early next year. The Working Group expects that a bill be introduced in Parliament in 2009. The Working Group‘s priority is indeed to ensure that the UK will enact new legislation on foreign bribery which is effective and comprehensive (including on liability of legal persons). In this context, the Working Group will seek to confer with the Law Commission about this Report and the concerns raised therein prior to the Commission‘s publication of its report. In addition, the Group welcomes the invitation of the UK government to discuss the content of the Law Commission report soon after its publication in order to fully apprise the UK of the views of the Working Group before a draft bill is submitted for pre-legislative scrutiny. The modalities of such discussion will need to be agreed between the United Kingdom and the Management Group. In addition, in light of the numerous issues of serious concern, the Working Group requests the UK to provide a written report on legislative progress at each Working Group meeting and reserves the right to carry out follow-up visits to the UK as it deems appropriate. The Working Group may also take further appropriate action after it considers the reports or any on-site visits.

The Working Group stresses that failing to enact effective and comprehensive legislation undermines the credibility of the UK legal framework and potentially triggers the need for increased due diligence over UK companies by their commercial partners or Multilateral Development Banks. In light of the above and based on its findings regarding the UK‘s implementation of the Convention and the Revised Recommendation, the Working Group also (i) makes the following recommendations to the UK under part I; and (ii) will follow up the issues in part II when there is sufficient relevant practice.

Part I. Recommendations

1. Regarding the offence of foreign bribery, the Working Group recommends that the UK:

(a) enact effective and modern foreign bribery legislation in accordance with the Convention at the earliest possible date and as a matter of high priority (Convention Article 1);
(b) ensure, in particular, that such legislation does not permit principal consent as a defence to foreign bribery and criminalises extraterritorial foreign bribery committed through an intermediary who is not a UK national (Convention Article 1).

2. Regarding the liability of legal persons, the Working Group recommends that the UK adopt on a high priority basis appropriate legislation to achieve effective corporate liability for foreign bribery (Convention Articles 2 and 3).

3. Regarding jurisdiction over foreign bribery cases, the Working Group recommends that the UK:

(a) satisfy the Working Group, by enacting legislation or otherwise, that it has established a broad territorial basis for jurisdiction that does not require an extensive physical connection to the bribery act (Convention Article 4(1));
(b) enact legislation to establish, for foreign bribery cases, nationality jurisdiction over legal persons incorporated in the Crown Dependencies and Overseas Territories (Convention Article 4(2)).

4. Regarding the application of Article 5, the Working Group recommends that the UK:

(a) take all necessary measures to ensure that Article 5 applies effectively to investigators and prosecutors at all stages of a foreign bribery investigation or prosecution, and in respect of all investigative and prosecutorial decisions including those made by the SFO, police and Attorney General (Convention Article 5);
(b) ensure that all relevant parts of the government are fully aware of their duty to respect the principles in Article 5 so that they can assist investigators and prosecutors to act in accordance with that Article (Convention Article 5).

5. Regarding the investigation and prosecution of foreign bribery cases, the Working Group recommends that the UK:

(a) ensure that the Attorney General‘s superintendence role does not include the power to give directions to the Director in individual foreign bribery cases, and eliminate the statutory requirements for the Attorney General to consent to prosecutions of foreign bribery (Convention Article 5; Revised Recommendation Paragraphs I and II); 72
(b) take steps to ensure that the SFO can obtain access to information that may be relevant to a foreign bribery investigation and which is held by the National Audit Office, tax authorities in the Crown Dependencies and Overseas Territories, and other UK government agencies (Revised Recommendation Paragraphs I and II);
(c) include the foreign bribery offence within the scope of the current reform efforts to make its system of plea bargaining more effective (Revised Recommendation Paragraphs I and II);
(d) improve the ability of the Crown Dependencies and Overseas Territories to provide MLA to the UK, including by eliminating formal requirements and increasing the available resources; ensuring that the Overseas Territories adopt, and encouraging the Crown Dependencies to adopt, foreign bribery legislation, and analysing the causes of delay (Convention Article 9; Revised Recommendation Paragraphs I, II.vii and VII);
(e) consider re-opening the Al Yamamah investigation if the UK were satisfied that the circumstances that led to the decision to discontinue the investigation sufficiently changed (Convention Article 5).

6. Regarding resources for foreign bribery cases, the Working Group recommends that the UK ensure that the SFO and the relevant investigative agencies have sufficient human and financial resources so as to carry out their role effectively in foreign bribery cases (Revised Recommendation Paragraphs I and II).

7. Regarding export credits, the Working Group recommends that Export Credits Guarantee Department (ECGD):

(a) in any case where a criminal investigation into a transaction supported by ECGD has been blocked for reasons other than on the merits, make vigorous use of all of its powers, including notably its audit powers, to investigate whether the transaction involves foreign bribery (Convention Article 3(4), Revised Recommendation Paragraph I);
(b) review its general contracting policies for future transactions to address policy issues raised by cases that cannot be investigated by criminal law enforcement authorities (Convention Article 3(4), Revised Recommendation Paragraph I). 

Part II. Follow-up by the Working Group

8. The Working Group will follow up on the issues below, as practice develops, in order to assess:

(a) the rules for appointing and removing the SFO Director, and the powers of the Attorney General and SFO Director in foreign bribery cases (Convention Article 5; Revised Recommendation Paragraphs I and II);
(b) the results of the UK‘s continuing active review of the disclosure regime for prosecutors in complex commercial cases as they apply to foreign bribery and the need for resources in such cases (Revised Recommendation Paragraphs I and II);
(c) the use of co-operative witnesses and deferred prosecution of companies in foreign bribery cases (Revised Recommendation Paragraphs I and II).

Posted 10/20/08

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The UN Global Compact Delists 630 Companies for Failure to Communicate on Governance

The United Nations Global Compact Office has removed a total of 630 companies from its list of participants for failure to communicate progress on governance.  The delisting policy was first implemented in January 2008, when 394 companies were removed from the participant list. Since then, an additional 236 companies have been delisted – bringing to 630 the total number of companies delisted since the policy was implemented.  Companies that have been blacklisted are based all over the world, with almost an equal balance between the developing and industrialized countries.  Many subsidiaries of well-known brands, such as L’Oreal, Hilton, Mitsubishi, and Barclays, also made the list. 

Download the full list here.

The Global Compact is a voluntary initiative that seeks to advance universal principles on human rights, labor, environment and anti-corruption through the active engagement of the corporate community, in cooperation with civil society and representatives of organized labor, according to the UNGC website.  In accordance with the Integrity Measures, introduced to the Global Compact in 2004 as a, companies are required to communicate annually to their stakeholders on progress made in implementing the ten principles of the UNGC.

The Global Compact’s policy on communicating progress asks participants to communicate annually to all stakeholders their progress in implementing the GC principles.  Participants are also expected to submit a link to or description of their communication on progress to the Global Compact website and/or, Global Compact local network website.  The 630 companies that have been delisted have failed to submit a communication on progress for three years in a row.  The UNGC office states that the companies may seek reinstatement as an “active” participant to the Global Compact and to the list of participants on the Global Compact website if appropriate actions are undertaken.

Despite the large number of companies removed from the participant list, the overall number of participants continues to rise. During the first half of 2008, 701 new companies have joined the UN Global Compact, increasing the total number of business participants to 4619.

Posted 7/8/08

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TI Assesses Countries' Progress on the Enforcement of the OECD Anti-Bribery Convention

Germany shows more aggression on combating bribery, but many countries still falling behind

Germany has undertaken the highest number of investigations for bribery, surpassing even the United States, according to a 2008 Progress Report on enforcement of the OECD Anti-Bribery Convention, produced by Transparency International (TI).  The top three countries that showed the strongest enforcement are Germany, the United States and France.  It seems clear that Germany’s strong actions were prompted by the scandal at Siemens, where investigations are still ongoing.  In 2008, data shows Germany has had 43 bribery cases open and undertaken 88 investigations, exceeding U.S. investigations by 19. 

Despite the strong enforcement by some countries, over half of the OECD signatory countries have made no progress on enforcement, TI says.  G-7 countries that have made little to no progress on enforcement include Japan, the United Kingdom and Canada, a trend TI says is having a very damaging effect on the effectiveness of the Convention. 

The business community is receiving mixed messages, the progress report says.  Germany is taking very strong action against Siemens, which has prompted other investigations, while the UK took no action against BAE Systems, whose alleged involvement in arms-related bribery with Saudi Arabia drew global attention.  The effectiveness of the Convention is also being undermined by the number of non-signatory countries taking a larger role in international trade, such as China, India and Russia.

Based on these challenges, TI has issued a number of recommendations:

UK commitment should be intensified.  The proposed Corruption Bill 2008-2009 should be passed quickly, and further investigations should be undertaken by the Serious Fraud Office.
Foreclosing the national security precedent in the UK.  The House of Lord must uphold the London High Court decisions invalidating the termination of the BAE investigation, which was originally halted on the grounds national security.  TI sees the excuse to avoid the enforcement of the Convention as a dangerous precedent. 

Other lagging governments should catch up.  More G-7 states need to be involved in investigations to set an example that the Convention works.

Action by the Secretary-General and the OECD Ministerial Council should be taken.  Higher leadership within the OECD needs to be involved in order to bring pressure on governments lagging in enforcement.     

A rigorous monitoring program should be continued.  The Working Group on Bribery should continue its monitoring activities, which are currently under review, and step up high-level missions to signatory states to verify enforcement.

Accession by other major exporting states should be encouraged.  Examples should be set by the current signatory states in order to encourage other countries to join as well.  A watch list should be created for those countries lagging in enforcement, high-level missions should be part of the monitoring program and suspension should be issued if enforcement standards are not met.

In addition to this overview of progress on enforcement, TI includes a summary on the status of the level of access to information in many signatory countries.  The United States leads in this category.  A major part of the report is also devoted to a description of enforcement systems within each country, followed by recommendations for improvement.  Finally, major cases and investigations are explained in detail, each of which could make a large impact on the success of countries’ abilities to confront corporations that continue to be involved in bribery. 

Posted 7/1/08

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Supply-Side Corruption: Perspectives on a Trillion-Dollar Problem

Authors:
Cathy Stevulak, The Sempra Group Inc., Canada
Jeffrey Campbell, Dalhousie University, Canada

Journal of Corporate Citizenship 29 (Spring 2008): 33-48

This article provides a helpful overview of the challenges to curbing supply-side corruption.  More and more legal and regulatory frameworks are being adopted around the world, but there is still a problem with implementing these frameworks into local, binding legislation.  The article discusses the main Conventions, such as the OECD Convention Against Bribery, and provides case studies of OECD member countries who have more successfully translated the frameworks into legislation and those who have had less success.  Both Stevulak and Campbell believe that lessons can and should be drawn from these case studies in order to improve the international system. 

In addition to discussing international frameworks, the authors see value in civil society and consumer-based initiatives that demand high standards from companies.  The authors used CSR initiatives as a model for how consumer demand for more ethical business could complement what governments are doing legally.  The article cites a number of initiatives that already exist, such as the Transparency International Bribe Payers Index, which are focused on increasing public access to information. 

Stevulak and Campbell argue setting a higher priority on good governance and anti-corruption practices and the creation of more collaborative efforts by industry and region to combat corruption would be signs of further progress.

See the full article in the Spring 2008 issue of the Journal of Corporate Citizenship.

Posted 5/19/08

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Transparency International Sees UN Anti-Corruption Conference as ‘Major Setback’

TI says Bali Conference failed to develop any monitoring system for implementing the UN Convention against Corruption

Transparency International (TI) and a broad civil society anti-corruption coalition have labeled as a major setback the failure of the international corruption conference on Bali to agree on how to independently assess country progress in implementing the UN Convention against Corruption (UNCAC).

Disagreement at the conference meant that concrete steps will only be decided at the next Conference on the Convention in late 2009, six years after the instrument was adopted. Civil society groups now fear a failure to build momentum and a downgrading of the Convention on political agendas. They characterized it as a disappointment for the billions of victims of corruption, who are meant to be represented by the national delegations at the UN conference.

Transparency International’s Director of Global Programs Christiaan Poortman stated that, “without a robust monitoring program, the UN Convention will fail to become an effective tool in the global fight against corruption. Despite a week of negotiations, the outcome in Bali failed to meet the promise of the first conference in Jordan, which recognized a review mechanism as being of ‘paramount importance’ and the need as ‘urgent’. It is therefore essential that there be an ongoing program of engagement and planning by the UN and governments in the two years until the next conference, so that no further opportunity is missed."

The results fell far short of the progress civil society groups had hoped to see, but there were a few positive notes. A great deal of emphasis was rightly placed on the recovery of stolen assets, a key issue for many developing countries including Indonesia, Nigeria and Peru, which have been burdened by kleptocratic regimes.

Lilian Ekeanyanwu, chairperson of Nigeria’s Zero Corruption Coalition and a member of Transparency International Nigeria, struck a note of disappointment, “Many of us, from countries where this is a life or death issue, will be heading home having heard little more than rhetoric. It’s difficult to overstate the role of the corruption fight in guaranteeing a better quality of life and equitable economic growth. That is why we came all this way to be at this conference.”

Ahead of the meeting of convention signatories, the so-called Conference of States Parties (CoSP), Transparency International released a position paper, which can be downloaded here, with specific technical recommendations for a long-range, phased review of country progress.

Posted 2/4/08

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Success of OECD Anti-Bribery Convention “Is Not Yet Assured,” Says Transparency International

TI’s Annual Report Asserts the Convention is at Crossroads

Eight years after the OECD Convention entered into force only 14 of the 34 countries to have ratified the Convention are pursuing what TI calls “significant enforcement,” while there is little or no enforcement in 20 countries. This includes 12 countries where there are no prosecutions.

• Countries with significant enforcement: Belgium, Bulgaria, Denmark, France, Germany, Hungary, Italy, Korea, the Netherlands, Norway, Spain, Sweden, Switzerland, and the United States.
  
  
• Countries with no prosecutions: Argentina, Australia, Austria, Brazil, Chile, Czech Republic, Estonia, Finland, Greece, Iceland, Ireland, Mexico, New Zealand, Poland, Portugal, Slovak Republic, Slovenia and the United Kingdom.
  
  

A critical setback to the Convention, according to TI’s new report relates to the decision by the UK Government to terminate investigations into alleged bribery by BAE Systems. The TI report states: “The termination by the United Kingdom of the investigation of bribery allegations against BAE Systems on the Al Yamamah arms project in Saudi Arabia presents a serious threat to the convention. The UK government's assertion that national security concerns overrode the commitment to prosecute foreign bribery opens a dangerous loophole that other parties could assert when investigations may offend powerful officials in important countries.”

This year’s TI report on the OECD Convention is based on the research of TI experts across the world. The report is detailed and provides country-by-country comments on the state of corruption investigations and prosecutions and the factors, including political considerations, that are influencing governments to enforce/ or not enforce the Convention.

TI Recommendations

Posted 7/18/07

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Building Support for the UN Convention Against Corruption
and the African Union Convention – SERAP Leads in Nigeria

The Socio-Economic Rights & Accountability Project (SERAP) Launches Campaign

SERAP, supported by the National Endowment for Democracy (NED), US, has launched a campaign in Nigeria in early July to build support and understanding for the new UN Convention. At the same time, SERAP is campaigning to secure National Assembly support for the prompt ratification of the African Union Convention on Preventing and Combating Corruption (AU Anti-Corruption Convention).

Nigeria ratified the UN Convention against Corruption in December 2004, but domestic implementation and enforcement of the Convention is hindered by the clause in section 12 of the Nigerian Constitution, which stipulates that the National Assembly must enact all international treaties into law before they can have the force of law.

Following the deposit of the 15th instrument of ratification by Algeria on 6th July 2006, the AU Anti-Corruption Convention entered into force on 5th August 2006. Article 23 of the AU Anti-Corruption Convention provides that the Convention shall enter into force 30 days after the deposit of the 15th instrument of ratification. Although Nigeria signed the Convention on 16th of December 2003, it has failed and/or refused to ratify the pan African anti-corruption treaty.

SERAP said the rationale behind its campaign is that: “The criminal code provisions relating to corruption are mostly outdated and very limited. While Nigeria has enacted a new Anti-Corruption Act, this Act does not sufficiently articulate provisions relating to recovery of Nigerian stolen money, and there are no adequate guarantees in the Act to ensure the full independence of the Commission established under the Act. Making the UN Convention against Corruption part of national laws is especially important at a time when the independence and effectiveness of national anti-corruption institutions are being questioned.”

Adetokunbo Mumuni noted that, “Much of the fight against corruption in Nigeria has almost always focused on criminal prosecution and punishment, not recovery of stolen funds stashed abroad. Yet, over $400 billion of Nigeria’s wealth has been stolen and sent abroad by corrupt officials since independence in 1960, contributing to ruining the economy and impoverishing the majority of the citizens.”

SERAP explained: “The UN Convention against Corruption is the most comprehensive global anti-corruption treaty and includes provisions on recovery of stolen funds stashed abroad. This is particularly important given that efforts to recapture stolen money are often stalled because of many legal and procedural obstacles faced in the states which provide a haven for stolen money.”

The organization also argued that asset-recovery is fundamental in the fight against corruption, “especially in Nigeria where high-level corruption has plundered the national wealth, and where resources are badly needed for reconstruction and the rehabilitation of the society.” It said, “The domestication of the UN Convention against Corruption can help support the efforts of Nigeria to redress the worst effects of corruption, while at the same time, sending a message to corrupt officials that there will be no place to hide their illicit assets,” the organization stated.

African Union Convention

SERAP said it is calling on the Nigerian National Assembly to:

• Endorse and support the ratification of the African Union Convention on Preventing and Combating Corruption.
• Ensure Nigeria’s ratification of the AU Anti-Corruption Convention as soon as possible.
• After ratification, ensure review of national anti-corruption laws to bring them in line with international standards.
  
  

The organization said this Convention brings striking novelties to international efforts against corruption by specifically linking corruption and human rights and represents a significant step in the efforts to develop international standards to counteract the systemic corruption across Africa. It imposes obligations on African countries to take a leadership role in the international fight against corruption in the public and private spheres.

The Convention also establishes an Advisory Board on Corruption within the AU to promote and encourage the adoption and application of anti-corruption measures in the continent and to advise governments on how to deal with corruption in their domestic jurisdictions.

Ratifying the Convention would ensure that the Board has jurisdiction to deal with the problem of corruption in Nigeria and give Nigeria an important role as a state party, since it would then be able to participate in the Convention oversight body and to nominate candidates to the Board.

The ratification of the Convention by Nigeria would also provide the framework to comprehensively reform the country’s substantive municipal laws in order to remove impunity for perpetrators of acts of corruption. By imposing obligations on governments to tackle bank secrecy, the Convention would reduce the attractiveness of jurisdictions that often serve as a destination point for stolen funds. In addition, it could serve as a tool to bring criminal complaints against those suspected to have been involved in acts of corruption, no matter where the offence is committed. It could also make offshore jurisdictions more accountable in terms of co-operating with requests for mutual legal assistance and to limit bank secrecy in criminal cases, said SERAP.

For further information contact SERAP at info@serap-nigeria.org.

Posted 7/17/07

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British Government Excuses Come Up Empty

Allegations of bribery should be investigated; the law is the law

"Shaming Britain" is the headline on an editorial in The Financial Times on June 28, 2007 that asserts that, "The British government was mistaken if it thought last December's shabby decision to drop its investigation into alleged corruption around the £43bn Al-Yamamah fighter export deal with Saudi Arabia would end the matter."

It noted that the US Department of Justice has decided to launch its own probe into whether BAE Systems has violated the Foreign Corrupt Practices Act. It said this decision shows the UK government's arguments for suspending its investigation - that it would wreck a vital national security relationship with the Saudis and cost thousands of jobs - for what they are: specious realpolitik and economic excuses. It added, “Allegations of bribery should be investigated; the law is the law.” And, it said, “The British government has been pusillanimous and the DoJ has exposed it.”

To read past news coverage of the BAE scandal, see News. 

Blair Blasted By OECD Officials

Reaction Calls Validity of OECD Anti-Bribery Convention into Question

Case Highlights Rising Concern About Defense and Corruption - See Story on Iraq Below Report on OECD

UPDATE! UK Government Letter Cites Security As Reason For Ending Major Corruption Probe. On January 25, 2007, the office of the UK Attorney General wrote to the UK's Campaign Against Arms Trade (who forwarded the letter to Ethicsworld - attached here) denying that commercial considerations influenced the Blair Government’s much-criticized decision to quash a corruption investigation into contracts between British Aerospace Systems (BAE Systems) and Saudi Arabia. The letter said the decision was driven by serious anti-terrorism and national security concerns. Denying that the action violates the OECD Anti-Bribery Convention, the letter includes a detailed statement on new UK efforts to enforce the Convention. Governments frequently cite 'national security' in refusing to disclose defense contracts. The letter implies that the UK bowed to Saudi government pressures and saw the investigation as a threat to the two countries' intelligence relationship.

Very rarely does the Organization of Economic Cooperation and Development (OECD) - an organization of 30 countries that promotes democratic government and the market economy - publicly rebuke one its member countries, let alone one of its most powerful. However, on January 18, 2007 the new OECD Secretary-General Angel Gurría voiced serious concerns about the recent action by UK Prime Minister Tony Blair to suppress a corruption investigation into alleged bribes paid to senior Saudi Arabian Government officials by the UK’s British Aerospace Systems plc (BAeS) in regard to major defense equipment contracts.

Mr. Blair justified his decision by citing national security concerns and the risk that thousands of UK jobs related to the so-called Al Yamamah contract were in danger. News reports have suggested that the Saudis threatened to give a major BAeS contract to French manufacturers if the investigation was continued.

NGO Protest

On the eve of the OECD meeting that was set to review progress on implementing the OECD Anti-Corruption Convention, a large group of non-governmental organizations issued a strongly worded letter of protest over Mr. Blair’s actions. They stated in part, “The UK is a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the OECD Anti-bribery Convention). Article 5 of the OECD Anti-bribery Convention requires that the investigation and prosecution of foreign bribery “…shall not be influenced by considerations of national economic interest” or “the potential effect upon relations with another State…”

The early termination of the investigation for reasons that do not relate to the legal merits of the case sends the message that companies trading with countries that a government claims to be of strategic importance are above the law and can bribe with impunity. This decision risks reversing the progress made in recent years by the 36 signatories to the OECD Anti-bribery Convention to raise standards and level the playing field in international business transactions.”

The NGOs added, “It also threatens the implementation of the more recent United Nations Convention against Corruption (UNCAC), which requires all parties, including the new trading powers of China, India and Russia, to investigate and prosecute companies that pay bribes overseas. Finally, it is likely to cause irreparable damage to the UK’s reputation as an anti-corruption champion on the world stage. At the OECD, for example, it is hard to see how the UK can credibly continue to play its role in the process of peer review, through which parties hold each other to account for their implementation of the Convention. Similarly, future efforts by the UK to impose governance standards on developing countries in receipt of aid and debt relief are likely to be viewed as nothing less than double standards. Given the devastating impacts of corruption on democracy, sustainable development, human rights and poverty we call upon the UK Government to re-open the investigation of the Al Yamamah case.”

OECD Issues Secretary-General’s January 18, 2007 Statement

OECD Secretary-General Angel Gurría stressed the important role of governments in preserving the credibility and integrity of the OECD Anti-Bribery Convention, in a statement at the session of the OECD Working Group on Bribery held in Paris on 16-18 January 2007. The credibility of the Convention depends on its implementation and enforcement by the countries that are signatories to it, Mr. Gurría made clear. “The political will of our members, collectively and individually, is of very critical importance…I am gratified that the OECD provides a forum where we can have a full and frank exchange of views on these issues,” he told delegates.

"In the context of its regular exchange of views on recent developments, the Working Group engaged in discussions regarding the recent discontinuation by the United Kingdom of a major foreign bribery investigation concerning BAE SYSTEMS plc and the Al Yamamah defence contract with the government of Saudi Arabia. The Working Group appreciates the efforts of the United Kingdom authorities to explain the decision to other members of the Convention.

The Working Group has serious concerns as to whether the decision was consistent with the OECD Anti-Bribery Convention and will discuss further the issue in March 2007, in the context of the United Kingdom written report on its implementation of recommendations set out in the 2005 Phase 2 examination report on its enforcement and application in practice of the OECD Convention. The Working Group will then consider appropriate action.

In the context of the discussion to be held in March, the Working Group would make reference to two particular recommendations in its 2005 report on the application of the Convention by the United Kingdom. These recommendations concern “the performance of the SFO and other relevant agencies with regard to foreign bribery allegations…including in particular with regard to decisions not to open or to discontinue an investigation” (paragraph 254 a.)  and amendments that would “ensure that the investigation and prosecution of bribery of foreign public officials shall not be influenced by considerations of national economic interest, the potential effect upon relations with another state or the identity of the natural or legal persons involved” (paragraph 255 a.) as prescribed by Article 5 of the Convention. 

All 30 OECD countries and six others -- Argentina, Brazil, Bulgaria, Chile, Estonia and Slovenia -- are signatories to the Convention, which outlaws bribery of foreign public officials in international business transactions"

Background

On 14 December 2006, the UK Attorney General (AG), Lord Goldsmith, informed the House of Lords that the Director of the Serious Fraud Office (SFO), Robert Wardle, had decided to discontinue its investigation into the affairs of BAeS as far as they relate to the Al Yamamah defence contract. The decision had been taken following representations made both to the Attorney General and the SFO Director concerning "the need to safeguard national and international security." The announcement unleashed widespread criticism, both in the UK and externally.

In 1985, with the encouragement and support of the Government of Margaret Thatcher, British Aerospace (now BAE Systems/BAeS) signed a contract to supply the Saudi Air force with 200 Tornado fighter planes and related equipment and services: the "Al Yamamah" contract. There were several related contracts, involving Rolls Royce aero engines and others. The first two phases of the contract are estimated to have been worth some £40 billion ($80 billion/€60 billion). BAeS still employs some 3,000 expatriate staff on the contract in Saudi Arabia. The sales were facilitated by the Defence Export Sales Organisation, part of the Ministry of Defence, and involved some government-to-government arrangements.

Currently, the third phase of Al Yamamah has been agreed in principle (Mr. Blair visited Saudi Arabia last July). Reports varied as to whether there is much work to be done before a firm agreement is concluded, or about delivery of aircraft under the contract being imminent, or over whether confirmation of the contract was being held up by the criminal investigation. A further £20 billion further £20 billion ($40 billion) of sales of Eurofighter aircraft is said to be involved.

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Iraq & Corruption

“Losing Iraq, One Truckload at a Time”
The New York Times article by U.S.Captain Luiz Carlos Montalvan
January 14, 2007

The corruption allegations in a sensitive UK-Saudi Arabian defense contract coincide with rising concerns in the United States about corruption in Iraq. In a remarkable article in The New York Times on January 14, 2007, Captain Luis Carlos Montalvan, an active duty officer at Fort Benning in Georgia in the U.S., who has completed two full tours in Iraq, described in great detail key aspects of corruption in Iraq.

He noted that Iraqi unit commanders receive cash to pay unit Iraqi soldiers, but many of the names on the list may just be fiction and that the commanders may well be receiving far more cash than they need to pay active salaries. The vast amounts that these commanders pocket, up to 30% above legitimate claims, may go into the commanders’ pockets, or be passed along to insurgent groups.  More vast sums of cash regularly disappear as smuggling of oil by trucks across Iraq’s borders is now commonplace with the direct involvement of hundreds of customs officials.

Captain Montalvan pointed out that the recent major report by former U.S. Secretary of State James Baker III, known as the Iraq Study Group, highlighted the fact that the level of corruption in the Iraq Security Forces is staggering. He wrote that the Iraq Study Group found that $5 billion to $7 billion is lost annually to different types of corruption, and yet “there are still no examples of senior officials who have been brought before a court and convicted of corruption charges.” The result: “Economic development is hobbled by insecurity, corruption, lack of investment, dilapidated infrastructure and uncertainty.”

Posted 1/19/07

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OECD Adopts New Measures to Deter Bribery in Export Credits

In order to complement the Organization for Economic Co-Operation and Development’s (OECD) Anti-Bribery Convention, OECD countries have agreed to step up efforts to avoid giving official support to export contracts that are tainted by bribery. Government-backed export credit agencies provide about $US 60 billion in loans and loan guarantees annually to finance exports for projects around the world.

According to the OECD's press release, the new agreement calls for greater due diligence when an exporter appears on the debarment list of the World Bank or other major multilateral financial institutions or if an exporter or their agent is under charge in a national court or has been convicted for violation of laws against bribery of foreign public officials of any country within the last five years. When appropriate, this scrutiny may lead to the suspension of applications and/or denial of support/loss of cover.

Members of the OECD Working Party on Export Credits and Export Guarantees reached several agreements, including the following:

To take appropriate measures to deter bribery in international business transactions benefiting from official export credit support, in accordance with the legal system of each member country and the character of the export credit and not prejudicial to the rights of any parties not responsible for the illegal payments, including:

a) Informing exporters and, where appropriate, applicants, requesting support about the legal consequences of bribery in international business transactions under its national legal system including its national laws prohibiting such bribery and encouraging them to develop, apply and document appropriate management control systems that combat bribery.

b) Requiring exporters and, where appropriate, applicants, to provide an undertaking/ declaration that neither they, nor anyone acting on their behalf, such as agents, have been engaged or will engage in bribery in the transaction.

c) Verifying and noting whether exporters and, where appropriate, applicants, are listed on the publicly available debarment lists of the following international financial institutions: World Bank Group, African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development and the Inter-American Development Bank.

d) Requiring exporters and, where appropriate, applicants, to disclose whether they or anyone acting on their behalf in connection with the transaction are currently under charge in a national court or, within a five-year period preceding the application, have been convicted in a national court or been subject to equivalent national administrative measures for violation of laws against bribery of foreign public officials of any country.

e) Requiring that exporters and, where appropriate, applicants, disclose, upon demand: (i) the identity of persons acting on their behalf in connection with the transaction, and (ii) the amount and purpose of commissions and fees paid, or agreed to be paid, to such persons.

f) Undertaking enhanced due diligence if: (i) the exporters and, where appropriate, applicants, appear on the publicly available debarment lists of one of the international financial institutions referred to in 2 c); or (ii) the Member becomes aware that exporters and, where appropriate, applicants or anyone acting on their behalf in connection with the transaction, are currently under charge in a national court, or, within a five-year period preceding the application, has been convicted in a national court or been subject to equivalent national administrative measures for violation of laws against bribery of foreign public officials of any country; or (iii) the Member has reason to believe that bribery may be involved in the transaction.

g) In case of a conviction in a national court or equivalent national administrative measures for violation of laws against bribery of foreign public officials of any country within a five-year period, verifying whether appropriate internal corrective and preventive measures (1) have been taken, maintained and documented.

h) Developing and implementing procedures to disclose to their law enforcement authorities instances of credible evidence (2) of bribery in the case that such procedures do not already exist.

i) If there is credible evidence at any time that bribery was involved in the award or execution of the export contract, informing their law enforcement authorities promptly.

j) If, before credit, cover or other support has been approved, there is credible evidence that bribery was involved in the award or execution of the export contract, suspending approval of the application during the enhanced due diligence process.  If the enhanced due diligence concludes that bribery was involved in the transaction, the Member shall refuse to approve credit, cover or other support.

k) If, after credit, cover or other support has been approved bribery has been proven, taking appropriate action, such as denial of payment, indemnification, or refund of sums provided.

1. Such measures could include: replacing individuals that have been involved in bribery, adopting an appropriate anti-bribery management control systems, submitting to an audit and making the results of such periodic audits available.

2. For the purpose of this instrument, credible evidence is evidence of a quality which, after critical analysis, a court would find to be reasonable and sufficient grounds upon which to base a decision on the issue if no contrary evidence were submitted.

To read the entire agreement please see the OECD's 2006 Action Statement on Bribery and Officially Supported Export Credits.

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Massive Loopholes in OECD Anti-Corruption Convention Give “Legal” Cover to Corrupt International Business, Say U.S. Scholars

Report From Seminar Organized by the Center for Global Development

Two U.S. scholars, pursuing separate and independent research, have come to the same conclusions about practices in international investment that raise questions about the efficacy of the OECD Anti-Corruption Convention and the U.S. Foreign Corrupt Practices Act (FCPA).  They have documented cases in Indonesia’s electric power sector where multinational corporations have been instrumental in establishing special partnerships with shareholdings granted to local citizens with very close ties to top government officials. These partnerships, established with no risks to the local investors and often with loans arranged by the international investors, ensure that the citizens involved obtain large incomes. The partnerships have been depicted as being essential to enable the foreign investor to gain a substantial business foothold in Indonesia.

According to Theodore H. Moran (Marcus Wallenberg Professor of International Business and Finance School of Foreign Service, Georgetown University, Non-Resident Fellow, Center for Global Development) and Louis T. Wells (Herbert F. Johnson Professor of International Management, Harvard Business School), the existence of the partnerships has been well known to the World Bank and other international agencies, the American government and many of its agencies and the legal and auditing advisers to the U.S. multinational companies, such as Mission Energy and General Electric that have been operating in Indonesia. These companies, said the scholars at the seminar, have won legal opinions that their actions in establishing the partnerships were not in violation of the OECD Convention or the FCPA. “The view that these partnerships are legal is a startling new discovery and it suggests that the G8’s actions to counter international corruption are really a sham,” said Mr. Moran.
   
Detailed case studies of the partnerships in Indonesia, which involved close relatives of the countries former top politicians, are to be detailed in a book by Professor Wells that will be published in September by Oxford University Press. Mr. Moran’s research is being published by the Center for Global Development as “Working Paper Number 79” under the title “How Multinational Investors Evade Developed Country Laws.”

The Following is From an Abstract of Theodore Mann’s New Paper:

How effective are G-8 and OECD efforts to combat bribery and corrupt payments when multinational companies bid on concessions in the developing world?  Have the rich countries  – and the United States, in particular – done what is necessary to restrain multinational investors from paying off daughters of Presidents and cronies of Ministers to secure favors for their activities?

Recent evidence shows that the answer is no.  Multinational corporations from the US, Europe, and Japan have devised sophisticated payment mechanisms, as documented and described here, to evade home country anti-corruption laws, including the US Foreign Corrupt Practices Act, with impunity. Indeed, some US companies have laid these payment arrangements out before the US Department of Justice, the Securities and Exchange Commission, and other US agencies, without arousing any objection whatsoever.

Without reforms of the kind spelled out here, the OECD and G-8 campaign to prevent corrupt payments will turn out to be a sham.

New Evidence
The scope of the OECD Convention is quite narrow – requiring member states to pass domestic legislation that criminalizes a direct payment to a public official by an international company to secure a contract. New evidence that has emerged from the awarding of power projects to international companies in Indonesia, between 1995 and 2003, shows that multinational corporations have devised clever current-payoff-and-deferred-gift structures to relatives and friends of host country officials that do not technically put them at risk of OECD-consistent home country anti-bribery laws, or the US Foreign Corrupt Practices Act.

The basic structure has been for the multinational to approach a prominent family member or close friend of the host country leadership about forming a partnership to own the target investment project (or respond favorably when approached by a family member or close friend about forming a partnership), loan that family member or close friend the funds needed to take an equity stake in the project, and pay a dividend to the family member or close friend more than what was needed to service the original loan.  This arrangement functions as a deferred gift – the loan to fund the equity stake of the family member or close friend was paid off via the dividend over time.  The excess return above what was needed to service the loan was a current payoff. 

Unlike a genuine equity investor, the family-member-or-close-friend partner had no capital of his/her own at risk, nor any responsibility to repay the loan out of his/her own assets.  The equity stake came to the family member or close friend for free – the only “service” that was required was to ensure the foreign company was chosen to receive the infrastructure concession (in the Indonesian case discussed later, all but one of twenty-seven internationally-funded power projects were awarded without competitive bids).  In some cases, the family-member-or-close-friend partner began to receive “dividends” as soon as the concession was awarded, before the project was even in operation. Then, since the return to cover the loan payments and the current payoff depended upon the project remaining profitable, the family member or close friend had an on-going interest in ensuring that the project enjoy beneficial treatment.

Legal Cover
Particularly startling has been the discovery that some of these sophisticated payment mechanisms – as deployed by US investors to obtain infrastructure concessions – had been vetted by well-respected US law and accounting firms as part of the investors’ due diligence prior to committing funds, and reported to the US Securities and Exchange Commission, without objection. (Mr. Moran’s paper provides examples of how the partnerships were established and how they operate).

What Needs To Be Done?
To be effective, an authentic effort to combat bribery and corrupt payments in the awarding of investment concessions and the negotiation of investment agreements requires a new three-pronged attack.  First, the current scope of the 1999 OECD Convention Against Bribery is far too limited to be effective – requiring member states to pass domestic legislation that does no more than criminalize a straight payment to a public official by an international company to secure a contract.  The partnerships with family members and cronies sketched out here -- backed by sophisticated loans-to-purchase-equity-shares, overlapping payment arrangements, and deferred-gift mechanisms – would almost certainly not be caught or punished using legislation that merely met the OECD Convention standard.

In contrast to the 1999 Convention, the OECD’s informal “Guidelines for Multinational Enterprises” have what the OECD admits is much broader scope.  In defining bribery, the Guidelines state “Enterprises should not, directly or indirectly, offer, promise, give, or demand a bribe or other undue advantage to obtain or retain business or other improper advantage.”

“In particular, enterprises should ….not use sub-contracts, purchase orders or consulting agreements as means of channeling payments to public officials, to employees of business partners or to their relatives or business associates.”  To this last sentence should be added, “partnership arrangements”.

Second, parallel with strengthening the OECD Convention, there is a need to introduce anti-corruption provisions explicitly into multilateral investor-state dispute settlement mechanisms.  Oddly enough, the 2,300-plus bilateral investment treaties (BITs) make no mention of bribery or corruption, and recent tribunals that have heard states defend actions taken against foreign investors as justified because the latter engaged in corrupt practices have rejected this line of argument. 

To put teeth into anti-corruption efforts, a new balance must be struck.  Not only must international investors be protected against misbehavior on the part of host states, but host states must be better protected against misbehavior on the part of international investors.

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The UN Convention Against Corruption Has Entered in to Force

38 countries have ratified and 140 have signed. However, so far, only France of the leading industrial countries has ratified.

The United Nations noted that the Convention entered into force on 14 December 2005, in accordance with article 68 (1) which reads as follows: “This Convention shall enter into force on the ninetieth day after the date of deposit of the thirtieth instrument of ratification, acceptance, approval or accession.”  To be effective many countries need to pass enabling legislation that may well relate to many aspects of the Convention from freedom of information to corruption prosecution. The Convention is widely seen as offering the possibility of enhancing cooperation between authorities in efforts to enforce anti-corruption laws.

For example, The China Daily reported that Zhang Xuejun, procurator-general of South China's Guangdong Province, said the convention would provide a strong international legal basis for China to overcome its difficulties in investigating and extraditing criminals, however, the first step is to enact the necessary to enable this legislation, including statutes on money laundering to better adapt the Chinese legal system to the UN Anti-Corruption Convention. (see additional UN stories below on this page).

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U.N. Treaty to Fight Corruption Begins

By Michelle Faul, Associated Press, September 15, 2005

A global treaty to fight corruption go into force in 90 days, empowering nations to prosecute officials accused of stealing public funds and to override bank secrecy laws to ensure stolen public money can be recovered. Ecuador on Thursday became the 30th country to notify the United Nations that it had ratified the U.N. Convention Against Corruption, the number needed to put the document into effect. The treaty has been signed by 128 nations.

The treaty covers a broad range of issues, including bribery by corporate bodies, embezzlement, fraud, theft and extortion. It also provides broader powers to fight money laundering. "This dream has become a reality," the executive director of the U.N. Office of Drugs and Crime, Antonio Maria Costa, said in inviting other countries to join the convention. "As of today, countries can no longer hide behind banking secrecy. Until yesterday, there was no obligation for a repatriation of (stolen) assets," he said at a news conference. Read the full story on the Washington Post website.

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UN Develops a Draft Legislative Guide to Promote the Implementation of the United Nations Convention Against Corruption (UNCAC)

The UNCAC was adopted by the General Assembly by resolution 58/4 of 31 October 2003. The objective of this legislative/practical Legislative Guide is to assist States seeking to ratify and implement the UNCAC by identifying legislative requirements, issues arising from those requirements and various options available to States as they develop and draft the necessary legislation. While the Guide has been drafted mainly for policy makers and legislators in countries preparing for the ratification and implementation of the Convention, it also aims at providing a helpful basis for bilateral technical assistance projects and other initiatives that will be undertaken as part of international efforts to promote the broad ratification and implementation of the UNCAC. View full draft of Legislative Guide to Promote the Implementation of the United Nations Convention Against Corruption. For general information, please visit the UNCAC website.

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Corruption and Latin America

A great deal of activity is being seen around the OAS Convention and with regard to anti-corruption programs involving the ORGANIZATION OF AMERICAN STATES. We are grateful to the General Secretariat, Department of International Legal Affairs, Office of Legal Cooperation for providing us with the following key links to information on this work:

Inter-American Convention against Corruption
http://www.oas.org/juridico/english/treaties/b-58.html

Office of Legal Cooperation of the OAS General Secretariat http://www.oas.org/juridico/english/

Anti-corruption
http://www.oas.org/juridico/english/FightCur.html

Follow-up Mechanism for the Implementation of the Inter-American Convention against Corruption (MESICIC)
http://www.oas.org/juridico/english/followup.htm

Report of Buenos Aires
http://www.oas.org/juridico/english/followup_corr_arg.htm

Conference of States Parties of the MESICIC
http://www.oas.org/juridico/english/mesicic_conf_states.htm

Rules of Procedure of the Conference of States Parties of the MESICIC  
http://www.oas.org/juridico/english/followup_conf_rules.htm

Conclusions and Recommendations on Concrete Measures to Strengthen MESICIC
http://www.oas.org/juridico/english/followup_conf_concl.htm

Committee of Experts of MESICIC
http://www.oas.org/juridico/english/mesicic_com_experts.htm

Rules of Procedure and Other Provisions of the Committee of Experts of MESICIC
http://www.oas.org/juridico/english/mesicic_rules.pdf

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