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Make trade honest
Thursday, 15 April 2010 10:12

 

Bribery in international trade is one of the oldest crimes in the book, especially when it comes to government transactions.  “Give me 10% and my government will order from your company. … If I slip you 10%, will your government buy from my company”.  It takes two to tango.  Both the supplier and demander of bribes are guilty.  That’s why the Organisation for Economic Cooperation and Development (OECD) has been waging a long term fight against such bribery.  But are they winning this fight?

 

There are some who say that such bribery is not a problem.  It just greases the wheels of business.  It helps make things happen.  And particularly where it is just a regular 10 per cent, it is just a regular cost of doing business.

 

Don’t you dare believe this rot!  We all pay the price of such bribery.  The taxpayer pays because the cost of government purchases is inflated.  This diverts resources needed for education, housing and health care into the pockets of corrupt elites. In other words, corruption costs lives.

 

Very often the product purchased is not the best on offer.  Too often the result is shoddy roads, crumbling bridges, sub-standard hospitals and schools, and food and drugs that don’t meet safety standards.  The list could go on forever.  More fundamentally, such bribery undermines confidence and trust in our government, society and political systems.

 

Many years ago, back in 1977, the US government enacted the Foreign Corrupt Practices Act to tackle such bribery.  This law makes it unlawful to make payments to foreign government officials to assist in obtaining or retaining business.

 

But US business believed that this law put them at a competitive disadvantage vis-à-vis companies from other countries.  So the US government pushed the OECD group of 30 countries at the time to join forces in tackling bribery in international transactions.

 

The OECD Anti-Bribery Convention (officially OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions) was negotiated in 1997, signed on 17 December 1997 and came into force on 15 February 1999.  The Convention requires that the 38 signatory states enact criminal law against the bribery of foreign public officials to obtain advantages in international business (the following non-OECD countries Argentina, Brazil, Bulgaria, Chile, Estonia, Israel, Slovenia and South Africa have also signed up).  Companies and individuals who engage in such bribery must be subjected to effective, proportionate and dissuasive sanctions.  Tax deductions for bribe payments must also be disallowed under the 2009 Recommendation on Tax Measures for Combating Foreign Bribery.

 

This sounds good.  But in reality the OECD has no authority to implement or enforce the Convention.  It only monitors implementation by participating countries.  Signatory countries are responsible for implementing laws and regulations that conform to the Convention and therefore provide for enforcement.

 

Five years after the Anti-Bribery Convention was signed, Peter Eigen, founder of Transparency International (TI), declared that the convention was “in crisis” because it had produced no prosecutions and, worse still, a serious budget shortfall was stalling a review of its lackluster enforcement.  As he said, “From the Elf affair in France to Bofors in India, corruption has sullied business and politics at the highest levels”.

 

Eigen argued that the OECD convention was not being taken seriously enough by many companies -- in large part because OECD governments had failed to make businesses understand the new legislation.

 

The more everyone knows about this crime, the less likely companies are to offer bribes, the less likely public officials are to receive or solicit them, and the more likely law enforcement authorities are to investigate foreign bribery allegations.  TI is a non-governmental organization that has been doing a great job in this regard.  Through its 90+ chapters worldwide it raises awareness of the damaging effects of corruption and works with partners in government, business and civil society to develop and implement effective measures to tackle it.

 

But we have to thank Tony Blair’s British government for making the OECD’s Anti-Bribery Convention world famous.  British Aerospace (now BAE) had been greasing the palms of Saudi princes for decades to secure sales of defense equipment (the BAeS Al Yamamah case).  The British Serious Fraud Office was hot on their trails and then the British Attorney General and Tony Blair himself stopped the investigation in 2006 on grounds of national and international security.

 

This case demonstrated both the strengths and weaknesses of the OECD Anti-Bribery Convention.  Ultimately, the OECD and its member countries had no power to sanction the British government.  But the OECD members had the power to question and pressure the British government, and express their displeasure.  The inevitable publicity was a giant embarrassment for the British government.  This affair has been through the British courts and BAE is being fined, although it is getting off lightly.  While the British government still retains powers to escape its undertakings until the OECD Anti-Bribery Convention, public opinion would not countenance another affair of this nature.

 

Is the OECD Anti-Bribery Convention still a toothless tiger?

 

TI’s 2009 Progress Report on the OECD Anti-bribery Convention gives us some insights.  According to TI, only four out of 36 countries evaluated are actively enforcing the Convention – these are Germany, Norway, Switzerland, and United States.  There is moderate enforcement in 11 other countries -- Belgium, Denmark, Finland, France, Italy, Japan, Republic of Korea, the Netherlands, Spain, Sweden, United Kingdom.  But little to no enforcement in some 21 countries -- Argentina, Australia, Austria, Brazil, Bulgaria, Canada, Chile, Czech Republic, Estonia, Greece, Hungary, Ireland, Israel, Mexico, New Zealand, Poland, Portugal, Slovak Republic, Slovenia, South Africa, and Turkey.

 

Whether through antiquated bribery laws, outright political obstruction of investigations, lack of adequate funding for prosecutors or curtailing the powers of investigative magistrates, the OECD Convention still faces grave challenges. Another major obstacle is the use of national security considerations as a reason for not prosecuting foreign bribery. It is essential to reaffirm that the Convention does not permit national security exceptions.

 

TI recommends that China should sign and ratify the OECD Convention.  It argues that China has made good progress for a developing country.  But the achievements in legislation need to be supported by sufficient resources directed towards enforcement. In addition, they say that the central government needs to continue its efforts to ensure that regional and local governments are fully aware of and prepared to follow these laws or face the consequences.

 

The OECD Anti-Bribery Convention was an historical initiative.  The risk is that inaction by some countries will encourage backsliding by others, in other words, a race to the bottom.  The OECD is well aware of the risks.  That’s why it has launched an Initiative to Raise Global Awareness of Foreign Bribery.

 

Let’s hope that it bears fruit.

 

References:

 

OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

http://www.oecd.org/document/21/0,3343,en_2649_34859_2017813_1_1_1_1,00.html

 

Multinationals’ Bribery Goes Unpunished by Peter Eigen, Chairman of Transparency International.  International Herald Tribune, 12 November 2002.

http://www.globalpolicy.org/component/content/article/172/30215.html

 

Progress Report: OECD Anti-Bribery Convention 2009, Transparency International

http://www.transparency.org/news_room/latest_news/press_releases/2009/2009_06_23_2009_oecd_progress_report

 


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