Ten years on: The fight against foreign bribery

There have been major successes since the OECD’s Anti-Bribery Convention entered into force. But it will take a lot more to clean up unfair business practices.

Not so long ago, bribery in international business deals was considered just a part of business as usual. In some countries, companies could even ask for tax deductions for bribe payments.


That was before the entry into force of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions in 1999. Today, bribing public officials in other countries to win business advantages is against the law in the 38 countries that have joined the OECD Anti-Bribery Convention. These countries realise foreign bribery is in no one’s interest: it hurts companies, it hurts governments and it hurts ordinary people.

Still, ten years after the entry into force of the OECD Anti-Bribery Convention, foreign bribery remains for many an abstract concept and, as a result, an underestimated threat. Many companies still opt for the perceived short-term gains of bribery over protecting themselves against longer-term, largerscale risks. This is especially true when an important business deal hangs in the balance or when competitors are offering bribes.

But too few companies realise that when they bribe they put themselves in considerable legal and financial danger, not to mention the damage that could be done to their reputations.


Take this typical scenario: A telecommunications company establishes a subsidiary in an emerging but possibly risky new market. The subsidiary, tasked with installing mobile phone networks, quickly becomes profitable. Soon, it is so profitable that an official in the local government demands that company headquarters make it worth his while to renew the subsidiary’s operating license.

The company pays the official, the operating license is granted, and business continues as usual. Or does it?

Soon, the demands for bribes become more extravagant and more frequent. The company finds itself paying a major percentage of its profits not to shareholders but to corrupt officials. Shareholders’ confidence is battered as press reports of corruption begin hitting the front pages. Soon, the corrupt company is mired in an expensive government investigation that threatens to slap the company with heavy fines, hand down prison sentences and bar the company from lucrative public procurement contracts.

Meanwhile, the corrupt official uses bribe money to cheat his way to a senior post in his government. Corruption festers as money meant for building safe roads and providing clean water ends up in hidden offshore accounts. Foreign investment dries up as investors decide to shy away from such a risky market. All the while, people lose confidence in their government, which has left them to fend for themselves.

This kind of bribe still happens too often, and the OECD Anti-Bribery Convention seeks to stop it. The first and only legally binding instrument to focus on the supply side of bribery, the convention means countries are no longer allowed to provide companies with tax deductions for bribe payments.

Countries’ anti-bribery laws must apply to both individuals and companies, who can be hit with heavy fines or even prison time if found guilty of foreign bribery. Convention countries are also obligated to outlaw bribes offered via intermediaries and transactions that benefit third parties, such as an official’s spouse. Foreign bribery is a crime even if the briber would have been awarded a contract or business advantage anyway.

In the ten years since the convention entered into force, significant progress has been made. Today, the countries that have joined the OECD convention account for the vast majority of international business deals, constituting roughly two-thirds of world exports in 2009 and nearly 90% of global outward flows of foreign direct investment in 2008, according to the OECD and the International Monetary Fund. These countries have sanctioned more than 150 companies and individuals for foreign bribery and related offences, while another 250 cases are ongoing. Sanctions have resulted in stiff prison sentences and fines totalling more than €1.2 billion. However, more cases need to be brought forward for the convention to gain more weight.

After all, foreign bribery still poses a major threat, not least in these tough economic times when competition for public procurement contracts is intense. As a result, a number of new instruments have been adopted to fortify the convention’s legal framework.

In November 2009, the OECD adopted the new Recommendation for Further Combating Bribery of Foreign Public Officials in International Business Transactions. This initiative includes new provisions for combating small facilitation payments, protecting whistleblowers and improving communication between public officials and law enforcement authorities.

Then, in February 2010, the OECD adopted the Good Practice Guidance on Internal Controls, Ethics and Compliance, calling on companies to protect themselves against the risks of foreign bribery by putting in place strict internal controls and establish ethics and compliance programmes.

An interesting step has been to call on companies to provide employees and business partners with regular training on foreign bribery, while business organisations are advised to provide information, advice and training too in a bid to improve protection, including among smaller businesses.

The effectiveness of the convention depends on actions. Implementation of the convention and the new recommendation is closely monitored by a rigorous peer-review monitoring system, which Transparency International calls the “gold standard” of monitoring.

This three-phased process is carried out by the OECD Working Group on Bribery in International Business Transactions, which is made up of representatives from all 38 convention countries. The first phase includes an in-depth evaluation of each State Party’s legislation, institutions, policies and practices for complying with these instruments. In the second phase, working group examiners make on-site visits to meet with relevant representatives from the government, civil society and the private sector in the country being evaluated. The third phase of monitoring, which was launched in March 2010, is the most focused on enforcement, zeroing in on countries’ ability and willingness to prevent, investigate and prosecute bribing companies and individuals. Country reports from each phase of monitoring, which are publicly available online, provide recommendations on how countries can better implement the convention.

The fight against foreign bribery is far from over, but important progress has been made. However, as the world’s economies become ever more interconnected, corruption becomes easier to commit and more difficult to detect. The global economic crisis has reminded us of the consequences of poor governance. The Anti- Bribery Convention is a tool to help keep business practices clean.

References:

OECD (1997), Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, available at www.oecd.org/daf/nocorruption/convention

 
OECD (2009), Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions, available at www.oecd.org/daf/nocorruption/convention

 
OECD (2009), Typologies on the Role of Intermediaries in International Business Transactions, Paris.

©OECD Observer No 279 May 2010




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