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OECD Anti-Corruption Convention leaves critical questions still open

Aim to curb foreign bribery by international firms

  • Purpose: Briefing on the proposed "Convention on Combating Bribery of Foreign Public Officials in International Busines Transactions"
  • Issue: Actions that will be taken by OECD governments, critical questions
  • Timing: Official Convention drafting meeting at the OECD in Paris, 18- 21 November 1997, official signing in Paris on 18 December 1997
  • Media Contact: Mr. Jeff Lovitt,
  • Tel. 49-30-343 8200,
  • Fax 49-30-3470 3912,
  • e- mail: press@transparency.org

Contents of this memorandum:

  • Introduction & Summary
  • Public awareness
  • Focus on the bribe-givers
  • What is really at stake ?
  • Transparency International's perspectives
  • Earlier work on the Convention
  • Timetable
  • Loopholes and monitoring
  • Outstanding Issues Now
    A. Government-Owned or Controlled Enterprises.
    B. Elected Officials, Political Parties and Party Officials.
    C. Consistent and Effective Sanctions on Corporations.
    D. Entry into Force.
  • Beyond the Convention

Introduction & Summary

Officials of the 29 leading industrial countries, who are members of the Organisation of Economic Cooperation and Development, meet in Paris at the OECD on November 18-21, 1997, to finalise the anti-corruption Convention.

Transparency International, founded in 1993, is the non-governmental, non-politically-partisan, global anti-corruption organisation headquartered in Berlin, Germany. It is campaigning for an effective OECD Convention and working with many others in these efforts, such as the International Chamber of Commerce (ICC) and national business and employer organisations in OECD member countries. TI defines corruption as the abuse of public power for private gain.

The "Convention on Combating Bribery of Foreign Public Officials in International Business Transactions", will oblige those who sign it to make the bribery of foreign officials a crime wherever in the world this takes place.

The Convention will have a global impact. It will reduce the supply side of corruption as the OECD countries are the home states of most international companies. It will be important on the demand-side, strengthening domestic anti-corruption efforts in developing countries and in those countries in transition in Central and Eastern Europe.

Only a few, very important, outstanding issues now need to be resolved in finalising the Convention (see pages 6-8 for details): defining government officials, particularly with regard to government-owned enterprises; embracing bribery in the context of legislative officials, political parties and party officials; ensuring consistent and effective sanctions on corporations; and agreeing on a schedule for entry into force without unreasonable delay -

Public awareness

Public knowledge of the critical issues under discussion within the OECD needs to be increased. In defining and describing those issues, the public can note that finally govern-ments are moving to curb corruption. At the same time, it needs to be stressed that actions by governments to finalise a treaty with large loopholes amounts to a signal to corporations that they can continue to pay for-eign bribes. An inadequate Convention forces the question to OECD governments: how much global business bribery is the international community willing to tolerate ?

Focus on the bribe-givers

The media mostly reports on the public officials around the globe who enrich themselves by taking bribes, while the bribe-givers often receive less public attention. But both parties to corrupt practices conspire, in effect, to do damage to the development and to international commerce. Actions are needed to curb corruption and the proposed OECD Convention is an overdue initiative to curb the bribe-givers.

Currently, there are few disincentives to many bribe-givers in international transactions. Only the United States has a Foreign Corrupt Practices Act that makes it a criminal offence for a U.S. firm to pay bribes abroad. It is time there was change. This is what the OECD Ministers agreed in May, the G7 Summit endorsed in June, and this is what is at issue in the proposed OECD Convention.

What is really at stake ?

Bribery in international business subverts world trade and investment (for example, recent studies show a direct link between corruption and foreign direct investment: the higher the former, the lower the latter).

Bribery often leads to a misallocation of scarce public resources. Sometimes public officials are bribed to support non-essential projects thereby, for example in many developing countries, further postponing construction of vital rural clinics and sanitation systems. Sometimes important infrastructure, such as roads and railways, is constructed but then collapses. The rot may result from foreign contractors doing dirty deals with local administrators (for example, purchasing poor quality equipment at inflated prices) that enrich them both.

Bribery can enable corrupt authoritarian regimes to stay in office. And there is frequently a link between high levels of official corruption and widespread human rights abuse. Or, corporate bribery of officials can contribute to the collapse of fragile institutions of democracy. And, at worst, the collapse of such institutions can spark the forceful overthrow of governments, so unleashing a fresh cycle of military rule, repression and corruption.

No country is immune from corruption. Let us not forget that the drive to legislate on foreign corrupt practices in the United States, for example, was stimulated by the Wa-tergate scandal - a scandal that involved illicit political payments by a number of U.S. corporate leaders. And several countries in Western Europe have experienced major political corruption scandals in recent times.

But, the impact of bribery on peoples lives and on democracy is greatest in the poorest countries and those in transition to free market systems. Here the bribery is like a wrecking ball, destroying good government, a free press and an independent judiciary. Not to mention the destruction of basic health and education services.

Transparency International's perspectives

These are the reasons why Transparency International has attached such priority to the OECD developments. T.I.'s campaign involves the more than 60 national organisations around the world, which have formed, or are in the process of forming, TI National Chapters. The National Chapters are coalitions of leading citizens in private and public life who are building anti-corruption agendas.

TI Chairman Peter Eigen states: "The work in the OECD follows G7 Summit statements to end the tax deductibility of bribes, to introduce legislation to criminalise foreign bribery by corporations, and to agree on an anti-corruption Convention. Now, we face the first test of that declaration. We have seen excellent progress in the technical run-up to the November 18 meeting. We are hopeful that agreements will be reached that go a long way towards a comprehensive set of curbs on international bribery by multinational firms."

Peter Eigen adds: "The officials meeting at the OECD dare not see their decisions in isolation from a host of major agreements reached within the multilateral official set-ting in recent months. The United Nations, the Global Coalition for Africa, the Organisation of American States, the International Monetary Fund, the World Bank and other global bodies, all of which have strong membership from the developing countries, have launched anti-corruption programmes. There is momentum to curb the actions of those who take bribes. There has to be action to curb the bribe-givers as well."

TI has campaigned for international action to curb foreign bribery - and not just the criminalisation of bribery, but also the elimination of tax deductions for the costs involved. It will continue to campaign for actions to curb the bribe-givers and the bribe-takers. The drama unfolding in the OECD framework is an important element, but only one element, on the broad global anti-corruption stage.

Earlier work on the Convention

The Convention needs to be viewed as part of a comprehensive package of measures which collectively have the potential to significantly reduce the present widespread international costs of corruption.

While recent times have seen considerable public debate about corruption, efforts to secure the kinds of reforms involved in the OECD Convention go back to the late 1970s. At that time, initiatives in the United Nations failed to make much progress. Over the last few years a more successful series of efforts has been made at the global level, such as in the OECD and in the United Nations, as well as at regional levels. Last year, the InterAmerican Convention Against Corruption was agreed by the OAS under which the countries of the Americas will work more closely to curb, detect and prosecute corruption.

In May 1996, OECD ministers defined a systematic strategy which was based on "soft law" (see footnote) as part of the broader approach and recommended that member countries (and the wider international community) take steps to end tax de-ductibility for illicit payments, which is still a feature in numerous countries, and tighten accounting requirements. These actions may be taken most effectively outside of the Convention, but it is clear that only a holistic approach to the question of curbing corruption by corporations holds any prospect of success. The Convention by itself will achieve comparatively little if bribes remain tax deductible, or if governments are not prepared to assist investigations involving their own corporations when a another country cries foul.

Negotiations on the OECD Convention began in a mist of distrust with some seeing the enthusiasm of the governments who supported the treaty (as opposed to a "soft law" approach) as stemming more from a wish to delay action, through lengthy years of drafting, than from a desire to create strict and enforceable obligations. However, the text has been defined and the final version, to be agreed upon this month, is likely to be progressive and effective, provided agreed recommendations on tax deductibility and other measures are also implemented in good faith.

Timetable

The Convention is due to be signed by the 29 governments on December 17, 1997. Under timetables agreed by Ministers attending the OECD's top policy meeting in May 1997, and reaffirmed at the G7 Summit in Denver, Colorado in June 1997, the 29 governments will have until April 1, 1998, to introduce the treaty to their national legislatures. The publicly declared and agreed upon aim is to bring the anti-corruption pact into effect no later than the end of 1998.

Loopholes and monitoring

The precise way in which decisions are taken on November 18-21 will be a guide to whether the leading industrial nations are determined to match legislative actions to the fine words of the G7 Summit leaders in Denver.

There is always a danger that legislatures, when translating the Convention into the much more precise language of national legislation, will exploit vagueness to water down critical elements. And, so leave loopholes in new laws enabling their owncorporations based to continue to pay bribes.

In view of these considerations, TI attaches particular importance to the proposed OECD Monitoring and Follow-up Program, called for in Article 11 of the Conven-tion. Signing of the Convention is only a first step. The monitoring approach is unusual for international Conventions, with active participation by teams drawn from other countries who are party to the Convention in examining the detail of what is taking place in a particular country. It is based on the mechanism devised for the money-laundering regime established by the Financial Action Task Force (FATF) and it is an element to which TI attaches the greatest importance.

Outstanding Issues Now

TI accepts that in any difficult negotiations there must be elements of compromise. However, it should be clear that the Convention will be flawed if it does not a) prohibit payments of bribes in connection with procurement by government-owned or controlled enterprises; b) prohibit bribe payments to legislative officials, political parties and party officials; and c) provide effective sanctions against corporations operating under different legal systems. These are controversial issues, but unless they are successfully resolved, the effectiveness of the Convention will be compromised.

A. Government-Owned or Controlled Enterprises

The objective of combating corruption of foreign public officials in international commerce can only be achieved if the Convention is applicable to all major areas of government procurement.
Different legal systems may define a "public official" in different ways, particularly with regard to employees in government-owned enterprises (so-called parastatals). To assure a consistent approach, TI suggests that the Convention make clear that officials of government-owned or controlled enter-prises will be deemed to be performing a public function if they are engaged in procurement in major economic sectors, such as air and rail transportation, health care, energy and power systems, defence, telecommunications and major infrastructure projects.
T.I.'s view is clear: anyone who is effectively a public servant should be covered, and this means those working for parastatal organisations that are owned or controlled by governments. In an age of mass-privatisation, where essential services have been put into the private sector, the former "public purposes" test is of little or no validity in determining whether an activity is or is not "public", and it can only lead to conflicting and self-interested interpretations.

B. Elected Officials, Political Parties and Party Officials.

A large share of recent corruption scandals has involved elected officials, political parties and party officials. Failure to prohibit bribes paid to such officials reduces the effectiveness of the Convention, and provides a road map for evasion. At least initially, the Conventions prohibition should only apply to bribe payments, and not to political contributions which are legal under the applicable law and comply with public disclosure requirements.
This will avoid getting the Convention-drafters into the difficult waters of political financing in general - although TI sees this as an area for future action. Again on this issue the TI view is clear: political corruption has been the driving force behind much of the waste and mismanagement of resources evident in many countries. And serious action designed to curb corruption must include payments to politicians, legislators and political parties which are designed to obtain business contracts or other improper advantages.
This is also the view of the private sector, as articulated by the ICC. Whether this is done in the Convention or through the "soft law" approaches being adopted for some other issues can be debated. But, there ought to be no dissent from the view that efforts are needed to curb improper payments to politicians and their parties. Having said this, it is not T.I.'s aim in this context to raise the whole vexed issue of political party financing. TI accepts that the OECD Convention drafting session is not the appropriate forum to resolve this issue, and that a detailed debate now would only delay progress on the Convention. Nevertheless, TI looks for a clear consensus emerging from the official discussions in Paris at the OECD on how this important issue is going to be addressed.

C. Consistent and Effective Sanctions on Corporations.

Because there are differences in existing criminal and corporate laws, the Convention must make clear that effective and dissuasive sanctions apply in all OECD states. In some OECD countries (for example, Japan and Germany) companies (as distinct from individual employees) cannot be held responsible for criminal acts. The Convention needs to make it clear that penalties, whether or not they are technical criminal penalties, or civil or administrative fines, must provide a meaningful deterrent.

D. Entry into Force.

It should be emphasised that in May 1997 the OECD members committed themselves to bringing the Convention into effect by the end of 1998. It is important that no excuses be found, that could enable governments to soften their commitment to meet the December 1998 deadline.
The number of countries required to bring the Convention into force is important. If the number is set too high, then the effective date of the Convention could be delayed long past the end of 1998. If it is set too low, then governments may hesitate to act out of fear of being first in the field and so creating situations where their corporations lose business in global competition.
The number should not be tied to all G7 members ratifying the Convention, because this would give an effective veto to each of them. TI would like to see a formula under which the Convention enters into force after about seven countries have ratified (including, perhaps, three or four of the G7 members to ensure that a critical mass of some of the most significant trading partners are on board.

Beyond the Convention

The Convention is not an end in itself - it is a milestone on the road to containing corruption in international transactions. TI will campaign to ensure that the subsequent national action in industrialised countries builds on the base of the Convention, and the broader strategy agreed under the OECD's "soft law" approach, and so produces a tough and comprehensive framework to curb international corporate bribe-givers. TI recognises that attaining all key actions may be difficult and that it will be necessary to continue in 1998 and beyond to secure support from politicians at the highest levels in all leading OECD countries.

Business organisations, trade unions and many civil society entities, with TI at the fore, will be following events to determine if the new anti-bribery measures are being implemented in good faith. Ratification, implementation and enforcement by the member countries of the Convention and proposed "soft law" actions will require careful monitoring to make sure that a consistent international system is developed. Active involvement by civil society is crucial, because of the inherent problems of governments policing other governments. TI stands ready to participate on this front.

As a critical mass of countries evolves that has ratified the Convention and acted to bring it into force, so calls may increase for developing countries to start limiting major procurement to corporations operating under the new regime. TI may be pursuing discussions with some governments on this concept, which may strengthen broad efforts to clean up international procurement, while also providing incentives for countries that have opted to stay out of the Convention to rethink their position. By noting this now, TI seeks to contribute to the development of policies by all the major players that would then make any such actions unnecessary.

The full review of all that is at stake in the Convention, in the "soft law" approaches and in future monitoring, underscores the fact that the world's major trading nations, and the leading multinational enterprises, should take the current anti-corruption initiatives seriously. TI looks to the leaders of the press to bring these issues fully into the public domain, and it is ready to provide a much detail as possible to journalists who wish to keep track of the important anti-corruption developments now unfolding across the globe.

For a continuous update on TI perspectives, news and contacts please turn to the Internet at www.transparency.org

For further information, please the International Secretariat of Transparency International at
Otto-Suhr-Allee 97-99,
D-10585 Berlin, Germany
Tel: +49-30-343 820-0
Fax: +49-30-347 039 12
The text of the Declaration will be available at www.transparency.org/iacc from 17 September 1997.

Note for editors: Transparency International is the secretariat to the Council of the International Anti-Corruption Conference (IACC). Transparency is a not-for-profit organisation, aiming to curb corruption at both national and international levels. based in Berlin, it has National Chapters in more than 60 countries.

Footnote:

Reference is made in this paper to "soft law". In the OECD context "soft law" means a recommendation for action by national governments, as distinct from "hard law", which is a legally binding treaty obligation, such as the proposed Convention.

More generally, the use of the "soft law" approach is becoming increasingly popular (though remaining controversial with traditionalists who believe that all inter-state obligations should rest on formal treaties). The "soft law" approach can eliminate time-consuming drafting of texts, which must accomodate a variety of different legal systems. It leaves flexibility for countries to determine precisely how they might best act to give effect to understandings that have been reached. The "soft law" approach can at times offer the best route in dealing with many of the issues that have to be tackled to curb corruption, and hence TI's support for use of this approach under the circumstances described in this memorandum.


For any press enquiries please contact

Mr. Jeff Lovitt,
Tel. 49-30-343 8200,
Fax 49-30-3470 3912,
e- mail: press@transparency.org