Select Committee on International Development Minutes of Evidence

Memorandum submitted by Transparency International (UK) continued

  (vii)  It is clear that particular types of organisation are best placed to play specific roles and that it is not possible to generalise about civil society on a homogeneous basis. Each category of organisation can benefit from external funding when this is matched to specific objectives. Such funding, however, should be linked to clear commitments from the recipient organisation as to its internal structure, commitment to its membership and general transparency.

3.d  The Role and Extent of Legal Co-operation Between Developing Countries and Between Developing Countries and Donors in Cases of Corruption.

3.d.1  Status of the problem
  (i)  The legal framework for co-operation between states in regard to corruption, does not differentiate between developing and donor countries. In the area of grand corruption, there are broadly two types of relevant activity; bribing public officials and theft of state assets. Whilst both activities are almost certainly contrary to local laws, proceedings are unlikely to be brought in the victim state where the corruption involves a ruling elite. In practice, legal co-operation is improbable. The situation may change when that elite loses office, but difficulties remain, including immunities that may apply in respect of a period in office, and also with the possible abuse of corruption charges as a political weapon. In the more extreme cases of state looting, one thought has been for corruption to be brought within the jurisdiction of an International Criminal Court, as proposed in the UN initiated Rome Statute of 1998. This would involve having major state looting qualify as one of "the most serious crimes of concern to the international community as a whole" (currently these include genocide, crimes against humanity and war crimes). On the scale alleged in the cases of the deceased former presidents Marcos of the Philippines and Abacha of Nigeria, this could be appropriate. Without wider support for the Rome Statute, however, the initiative is unlikely to proceed.

  (ii)  In regard to bribery of public officials in a developing country, where corruption is widespread, including at the highest levels in the state, legal co-operation remains improbable and it is necessary to examine whether a donor state can unilaterally take action? If the corrupt official resides in the UK and/or transfers the proceeds of corruption to acquire assets in this country, could proceedings be brought here? The general rule in criminal cases is that if all the elements of the offence are committed abroad, no offence is committed under our law. This rule is subject to limited exceptions (e.g. in relation to murder, child sex offences and war crimes). The Home Office Paper of June 2000, referred to below, states that the Government proposes the assumption of jurisdiction over UK nationals for offences of corruption committed abroad, notwithstanding problems associated with prosecution in such cases. This is strongly supported by TI-UK.

  (iii)  It is common for states to think first of criminal charges for corrupt activities. It is not widely appreciated that corrupt activities will frequently give rise to civil liability under our law. The civil courts take a different approach towards jurisdiction. The place where the corrupt activities took place is of less importance than the place where the Defendant resides. If the corrupt official is residing in this country, civil courts may well have jurisdiction. Civil courts can have wide powers to order assets to be frozen and to order the corrupt official and third parties to provide disclosure of documents. These powers can be invaluable in corruption cases. For this and other reasons mentioned below, civil courts may provide much more effective remedies for victim countries than criminal remedies. Consideration should be given to encouraging DFID to try to raise awareness amongst victim countries of the potential for civil remedies in cases of corruption.

3.d.2  Types of co-operation

  The main types of co-operation that can be provided by courts in this country in regard to corruption abroad, are the collection of evidence, extradition and confiscation of the proceeds.

3.d.2.1  Collection of oral or documentary evidence in this country for use in criminal investigations and prosecutions abroad

  (i)  This is known as a request for mutual legal assistance (section 4 Criminal Justice (International Co-operation) Act 1990). The UK does not limit this to countries with which reciprocal arrangements are in place. The central authority for requests to the UK is located in the Home Office and is known as the Mutual Legal Assistance Section in the Judicial Co-operation Unit. The Home Office requires requests to contain detailed information about the alleged offence etc. If the Home Secretary is satisfied that it discloses evidence of an offence having been committed under the law of the requesting state, he will nominate a magistrate's court to receive the evidence. The evidence is then returned to the Home Office for transmission to the requesting state.

  (ii)  Three years ago, the former government of Pakistan made such a request to collect evidence for use in the trial of Asif Ali Zardari, Benazir Bhutto's husband. Following criticism from the present military ruler, General Pervez Musharraf, that Britain was thwarting efforts to stamp out corruption, the Home Secretary agreed to provide the present regime with the evidence gathered. It was reported that the Home Secretary had received assurances that Zardari would not face the death penalty and that the evidence would only be used in the drug case for which it had originally been requested.

  (iii)  Various criticisms have been levelled against this system. The principal criticism is the delay in processing the request. Requests can take several years to process, as, for example, in the above case of Pakistan's request in relation to Zardari. This is partly because the Mutual Legal Assistance Unit is under-resourced and also because suspects are able to slow the system down with unmeritorious judicial review applications. Recent Home Office guidance aims to ensure that requests are handled faster. Further, the PIU (Performance & Innovation Unit) report states that a wide ranging review of mutual legal assistance is under way (para 11.51). One solution to these problems might be for such requests to be referred to the Serious Fraud Office, which has recently issued guidance facilitating direct access from other countries to the SFO for assistance.

  (iv)  Similar delays arise when an Anti-Corruption Bureau pursues a case with an international dimension and requires help from the UK. In fact, MLA from the UK can be difficult to secure. The Director of the Malawi ACB, Gilton Chiwaula, speaking in London in July 2000 mentioned that he had requested MLA from the UK authorities in relation to seven separate cases but that up to that time he had not received even a single reply. Perhaps, for ACBs in developing countries, consideration could be given to a kind of hot line, channeled through DFID, which could present these cases to the Home Office and provide direct feedback to ACBs

  (v)  There can be further delays arising from duplication, as the UK comprises three jurisdictions (England and Wales, Scotland and Northern Ireland). If evidence is located in these different jurisdictions, it may be necessary to involve different courts. Further, separate requests for assistance will have to be made to the appropriate authorities in Jersey, Guernsey and the Isle of Man. Moreover, there are limitations on the use to which evidence obtained through mutual legal assistance can be put. Under relevant legislation, without consent of the Home Office, the evidence may not be used for any purpose other than that specified in the request. So, if the evidence reveals the commission of an offence not mentioned in the request, separate consent needs to be obtained to use the evidence to prosecute the suspect for the second offence.

  (vi)  Again, the position on civil claims is different. Civil courts can obtain evidence from persons who are not parties to foreign proceedings for use in those proceedings (Evidence (Proceedings in other Jurisdictions) Act 1975). Such requests are made direct to the High Court thus by-passing the Mutual Assistance Unit in the Home Office and considerably reducing delays.

3.d.2.2  Extradition.

  Extradition is available if the corrupt official is living in this country provided (1) there is a reciprocal extradition arrangement with the requesting state or (2) the subject of the request has been accused or convicted of an extradition crime (which means it must be a crime under the laws of the requesting state and of this country). In cases of international corruption, extradition may be quite limited. Where all elements of the offence are committed abroad (the usual case), the UK might not extradite someone for bribing a foreign official, because no extradition crime would have been committed under UK law. Moreover, the UK would not extradite a suspect to some states where extortion and bribery are common, because of the risk of an unfair trial or inhuman punishments.

3.d.2.3  Confiscation of the proceeds of corruption
  (i)  Overseas authorities may request assistance to restrain or confiscate proceeds of corruption in this country (Part VI of the Criminal Justice Act 1988 and section 39 of the Drug Trafficking Act 1994). Such requests can be made before or after conviction. The request will only be granted if there is a reciprocal arrangement with the requesting country. Few developing countries, which have been victims of corruption, have the necessary reciprocal arrangements with United Kingdom in relation to all criminal offences (which would include corruption) as distinct from simply drugs trafficking. Furthermore, confiscated funds are retained by HM Government. No formal mechanism exists for returning them to the victim countries. The PIU report foreshadows improvements to the whole confiscation regime, which should make the UK a less hospitable repository for the proceeds of international crime. The Report notes that "asset sharing" arrangements are being negotiated with the USA and Canada (para 11.54). Consideration should be given to negotiating similar arrangements with victim countries to ensure the return of confiscated assets.

  (ii)  Civil courts have power to make an asset freezing order ancillary to foreign proceedings. An early example is that of Republic of Haiti v Duvalier [1989] 1 All ER 456 in which English proceedings were taken in support of French proceedings against Baby Doc Duvalier and others. In that case the Court granted a freezing and disclosure order in respect of the Duvalier assets worldwide.

3.e  Tracking and return of the proceeds of corruption

  This involves consideration of measures to combat the laundering of the proceeds of corruption. Deficiencies in this area have been highlighted recently in the US Senate Report on Private Banking and Money Laundering ("A Study of Opportunities and Vulnerabilities, a minority staff report for the Permanent Subcommittee of Investigations Hearing on Private Banking and Money Laundering (9 November 1999) available at This illustrates that the proceeds of corruption pass through banks and other intermediaries in this country. The Swiss Federal Banking Commission Report ("Abacha Funds at Swiss Banks") reveals very specifically that funds of the late General Sani Abacha were received from and transferred to banks in this country, which were clearly involved in handling the proceeds of corruption. There needs to be a similar report prepared and published by relevant authorities in this country—to make a difference, there needs to be a clear declaration from the authorities, that laundering the proceeds of corruption is a serious offence, that cases will be investigated and prosecutions will follow. Offers of co-operation to the government of Nigeria to recover looted funds need to be backed by action.

3.e.1.1  Criminal and civil liability
  (i)  Intermediaries that handle the proceeds of corruption could face civil and criminal liability under our laws. It is an offence (sections 93A and 93B Criminal Justice Act 1988) to assist another to retain the benefit of criminal conduct, or to acquire, possess or use the proceeds of criminal conduct. For these purposes, "criminal conduct". includes corrupt activities that occurred abroad. There is a surprising lack of awareness of this. Consideration should be given to encouraging authorities in this country to emphasise that proceeds of foreign corruption fall within the scope of anti-money laundering offences.

  (ii)  The elements of civil and criminal liability are very similar; namely. if the handler can be shown to have known (or in the case of criminal liability, suspected) that the funds represented the proceeds of corruption, liability will be incurred. Banks and other intermediaries are supposed to have procedures that ensure they "know their customer". If they followed these procedures and discovered the customer was a foreign official, and if the sums handled on behalf of that customer were large and out of proportion to the customer's legitimate wealth (see, e.g., the Abacha case study) the bank may be thought to have sufficient knowledge to give rise to liability.

  (iii)  TI will, on 30th October, present to a press conference some new "Know your Customer" guidelines agreed by a group of large international banks catering to wealthy individuals.

3.e.1.2  National Criminal Intelligence Service (NCIS)
  (i)  A bank that launders the proceeds of corruption will have a complete defence to criminal liability if it makes a disclosure to the police authorities and acts with the authorities' consent. Disclosures are made to the National Criminal Intelligence Service (NCIS). The PIU Report notes that reporting patterns are uneven (para 9.31) and modest (para 9.16). The PIU Report suggests that this is in part because of the low levels of prosecutions for money laundering in the UK. For example, in 1995, only 29 prosecutions were brought compared with 538 in Italy and 2,034 in US. The PIU suggests that the answer would be a few high profile prosecutions pour encourager les autres.

  (ii)  The disclosure report to the NCIS provides intelligence that could help investigation of the offence that produced the criminal proceeds in the first place. Where the offence has been committed in this country, the authorities here will have jurisdiction to investigate it further. Disclosures relating to foreign corruption will reveal offences committed abroad. This would fall outside the jurisdiction of the police here, under our present laws. The intelligence could be passed to the victim country through diplomatic channels. However, there may be no point in doing this if the authorities in that country are unlikely to investigate (because it reveals an offence committed by a member of the ruling elite), or worse, the intelligence is passed to the corrupt official. Consideration should be given to finding out the NCIS's policies and procedures for sharing intelligence (including with whom in the UK they consult, when deciding what to do with the intelligence) in such cases.

  (iii)  It is understood that the NCIS gives consent to a transaction as a matter of course unless they believe the party making the disclosure has been involved in any wrongdoing. Consideration should be given to changing this procedure and only giving consent after consulting authorities in the victim state where international corruption is suspected.

3.e.1.3  Promoting awareness of civil remedies

  The fact that disclosure gives banks a complete defence to criminal liability means that civil liability is of greater significance to victim countries. Such claims could lead to recovery of all funds that have been laundered by the bank or intermediary and could potentially be very substantial. We are not aware of any claims being brought, possibly because of a lack of awareness in victim countries of this remedy. We believe that if one such high profile claim were brought, the banking industry's perception of this problem would change. Again, as already recommended, consideration should be given to raising awareness of civil remedies in victim countries.

3.f  International Instruments on the Elimination of Corruption

3.f.1  The OECD Convention on the Bribery of Public Officials
  (i)  In recent years there has been a spectacular increase in the number and variety of intergovernmental measures to combat corruption, reflecting the developing perception of the damaging consequences of corruption. It is natural that states should prefer to proceed multilaterally, by international convention, rather than unilaterally and be criticised for disadvantaging its nationals. It was long the plea of US businessmen that they were unfairly restricted in competing internationally by the provisions of the Foreign Corrupt Practices Act 1977.

  (ii)  The most important of these measures are the 1997 OECD Revised Recommendation on Combating Bribery in International Business Transactions (the Revised Recommendation) and the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the OECD Convention) which came into force for all ratifying states (including the UK) on 15 February 1999.

  (iii)  The Revised Recommendation embraces many aspects of the fight against corruption including criminal and civil law, tax legislation, company and business accounting and internal control requirements, banking provisions, public procurement and international co-operation in investigation and other legal proceedings. The Convention seeks to move that Recommendation into hard law, by tackling the "supply side" of international corruption. It came into being in record time. It has been signed by all 29 OECD countries and 5 non-member countries. 24 countries have ratified the Convention.

  (iv)  The OECD Convention is the most important initiative in the fight against international corruption. The OECD acts by consensus and its resolutions therefore carry strong persuasive effect. The signatories represent approaching 80 per cent of world trade. The Convention has achieved a remarkable impetus towards adoption and implementation to clean up transnational trade and investment. It has already achieved greater impact than any other comparable initiative.

  (v)  Each signatory is required to make it a criminal offence for any person to offer, promise or give any undue pecuniary or other advantage, whether directly or indirectly or through intermediaries, to a foreign public official (widely defined), in order to obtain or retain business or other improper advantage in the conduct of international business. The offence has to be punishable by effective, proportionate and dissuasive criminal penalties. The foreign official can be an official of any state in the world—it does not have to be an OECD or other signatory state.

  (vi)  Whether or not the Convention will be effective in practice, will depend on what each exporting country provides in its laws regarding jurisdiction to prosecute for the offence of bribing foreign officials and what measures are taken in practice to enforce the law. Finally and crucially, each country has to review its current basis for jurisdiction to see that it is effective in the fight against bribery of foreign public officials, and if it is not, it has to take remedial steps. The Convention is not trying to achieve uniformity of laws. It is looking for what is called "functional equivalence" among the signatory states.

  (vii)  In the interests of achieving a signed convention within a surprisingly short time, some subjects were left unresolved. Most important of these, was the omission as an offence, of bribe payments to foreign political parties or party officials. These provide an obvious way around the criminal offence. Some of the major recorded cases of bribe payments to secure contracts have been made precisely in this way. At Florence in October 2000, a very experienced and well-informed group of 28 representatives from the public and private sectors and civil society and researchers, meeting by invitation of TI, made recommendations specifically addressing this omission. The OECD should ensure that bribe payments to foreign political parties and their officials to obtain or retain business, are effectively prohibited through its instruments. Meanwhile, states that have signed the Convention should prohibit corporations based in their own countries from making political party contributions in violation of the laws of the countries where the contributions are made.

3.f.2  The UN Declaration against Corruption and Bribery in International Commercial Transactions

3.f.3  The Interamerican Convention against Corruption of the Organisation of American States

  In addition to the above, there is a 1996 Inter-American Convention against Corruption and two resolutions (51/59 and 51/191) of the United Nations General Assembly of 1996. In terms of practical effect, it is necessary to take account also of measures adopted by the World Bank and other International Financial Institutions.

3.f.4  Other codes and conventions
  (i)  Other important initiatives have been undertaken by the European Union (EU) and the Council of Europe (COE). There is a 1997 EU Convention on the fight against corruption involving officials of the European Communities or officials of the EU. This has been ratified by the UK. In January 1999, the UK signed the COE Criminal Law Corruption Convention, which has not been ratified. This convention ambitiously seeks to create a measure of legal harmonisation of laws governing corruption, public and private, domestic and foreign.

  (ii)  A strong feature of all these measures (OECD, EU and COE) which distinguish them from many conventions in other fields is that follow-up mechanisms are in place.

  (iii)  The International Chamber of Commerce has revised and reissued its Rules of Conduct to Combat Extortion and Bribery. These are intended as a method of self-regulation by international business. They now prohibit bribery for any purpose, not only for obtaining business. Progressive companies trading internationally, looking to secure their futures, need openly to embrace anti-bribery measures to safeguard their reputations. Companies that lack resources to devote to carefully designing their own codes of ethical business in the area of corruption, would do well to consider formal adoption and internal promotion of the ICC Rules.

3.g  UK Legislation aimed at combating corruption in business dealings with developing countries

  There is no UK legislation aimed specifically at combating corruption in business dealings with developing countries. It would not be expected that UK legislation would distinguish between developed, emerging and developing countries in terms of laws to combat corruption. Legislation would deal with all transnational bribery. This is the purpose of the Revised Recommendation and the OECD Convention described above, which have accordingly drawn attention to the absence of UK legislation for this purpose. The UK was not unique in lacking legislation to criminalise the bribing of foreign public officials (FPO); indeed the USA was probably unique in having such legislation from 1977 until, after the OECD Convention came into force, signatory states (with the unfortunate exception of the UK and one or two others) started to introduce implementing legislation.

3.g.1  It is not currently a criminal offence in the UK to bribe an FPO overseas
  (i)  The UK government has consistently maintained, within the OECD Working Group on Bribery in International Business Transactions (the OECD Working Group), that the UK's existing laws are sufficient to enable the UK to comply fully with the obligations of the OECD Convention. It has also claimed that the payment of bribes to FPOs is not tax-deductible. TI has throughout disagreed with both these views.

  (ii)   The basis of the Government's opinion has never been made public, so it has not been tested or reviewed; there has never been a prosecution for the offence of bribing a FPO. It is TI's case that the UK is non-compliant with the OECD Convention and will remain so until there is in our law a clear offence of bribing (FPOs).

  (iii)  Support for TI's view comes from the Law Commission whose paper concluded that corrupt conduct that occurs abroad is beyond the jurisdiction of the English courts.

  (iv)  Support also comes from within Government. Treasury advice to H.M. Inspectors of Tax, a document substantially in the public domain and available on the worldwide web states:

    "The UK does not have jurisdiction over a corruption offence merely because some preparatory action took place here provided the actual offer or payment of the bribe took place abroad:" and again

    "The UK Courts do not have jurisdiction over corruption offences which take place entirely abroad even if all those involved are British nationals".

  (vii)  The reality is that conduct amounting to the bribery of a FPO is likely to take place wholly outside UK. In our view, the Treasury opinion is to be preferred to that of the Home Office.

  (viii)  It follows from the Treasury opinion that bribes to FPOs, negotiated and paid wholly offshore remain deductible for tax purposes. It is scandalous that this continues to be the case. If a clear offence of bribing FPOs were to be enacted, then section 577A of the Taxes Act would automatically disallow the deduction as a payment, the making of which, constitutes the commission of a criminal offence. The Inland Revenue claim that in practice extravagant commissions or bribes may be disallowed on other grounds, such as a payment made without consideration. However, the Revenue is precluded from passing the information to prosecuting authorities under rules of confidentiality.

  (ix)  Those bribing overseas seem to have a rather comfortable regime in this country.

3.g.2  Monitoring implementation of the OECD convention
  (i)  The OECD Convention provides for a systematic follow-up to monitor and promote its full implementation. Phase I involved an examination of the laws of each state to see whether they complied with the Convention. Preparation for this process commenced with the completion of a questionnaire and was followed by a "peer review" (by France and the Netherlands in the case of the UK). The final stage was the adoption of a country report containing a review of the country's relevant laws and an evaluation outlining the findings of the OECD Working Group.

  (ii)  TI assisted in the process for each country reviewed by submitting to the OECD a memorandum, substantially prepared by one of its local chapters, but reviewed by a TI specialist team of lawyers from the USA, Australia and Germany. TI-UK prepared such a memorandum to assist in the Phase I evaluation of the United Kingdom (copy annexed). The principal recommendation of that memorandum was:

    "TI considers that, to be compliant with the Convention and effective in countering international corruption, the UK should urgently enact a simple piece of legislation creating an offence of bribing a FPO, which would apply, even if the criminal activities take place wholly outside UK jurisdiction, provided the defendant is a UK citizen, or resident or a company incorporated in UK."

  (iii)  The OECD monitoring reports were published in time for the OECD Inter-ministerial meeting last June. The Working Group found that the UK laws were not in compliance with the standards of the OECD Convention and urged the UK to enact appropriate legislation as a matter of priority, taking into account the observations of the Group, who will review the situation by the end of 2000 ( UK Review of Implementation of the Convention and the 1997 Recommendation). Having failed the "examination" at the first attempt, the UK delegation immediately made it clear that new legislation is very unlikely by this time and that it actively proposes to "fail" a second review!

3.g.3  The urgency of finding Parliamentary time to criminalise bribery of FPOs
  (i)  There is real concern within the OECD at the UK's apparent lack of commitment to the implementation of the Convention. Bribery of foreign public officials (FPOs), is a serious international economic crime. To delay enacting this offence could severely damage the future success of the Convention, which rests on the basic assumption that the same rules will apply to all major exporters. It is particularly disappointing that the UK, a leading G7 nation, is now seen as one of the few laggards in curbing a practice that has devastated economies and at the very least aggravated in appalling poverty. The Home Secretary has rightly recognised corruption as a "deadly virus", that left unchecked, "weakens economies, creates huge inequalities and undermines the very foundations of democratic government". We have pointed out that it is normal practice to treat deadly viruses urgently and not "when parliamentary time allows"! Cannot a mature democratic process make parliamentary time for legislation that should surely be non-controversial?

  (ii)  The Government has chosen to deal with compliance with its international obligations in regard to corruption along with the reform of the domestic law of corruption and the removal of certain immunities from members of parliament. This seems likely to delay the entire process. There is no reason why there could not be a separate short and simple Bill enacting the Convention offence of bribing FPOs, or why these provisions could not be included in another appropriate Bill that carries a higher priority—it is understood that the Government intends to introduce, early in the new session of Parliament, a Financial Crimes Bill that seems ideally suited to contain this offence and related provisions. Given the recognition that the offence constitutes serious economic crime, the proceeds of which feed into the money laundering cycle, it could be claimed that the Financial Crimes Bill is where it should be enacted. Only in one of these ways can the urgency of complying with the Convention be met.

3.g.4  TI-UK's previous responses to the Government's discussion paper
  (i)  The Home Office published a paper (Cm 4759), last June, setting out the government's proposals for the reform of the law of corruption. The paper contains some sound and useful proposals. Most importantly, it proposes to criminalise the bribery of foreign public officials and to take nationality based extraterritorial jurisdiction for this offence. The paper allows for a period of consultation. TI-UK submitted two papers commenting on the proposals (copies attached). TI-UK broadly welcomed publication of the paper.

  (ii)  The following is the summary of points made in the first TI-UK submission.

    —  The proposed legislation needs to be clear and effective, especially to give effect to the UK's obligations under the OECD Convention.

    —  The equivalent laws in Scotland, Northern Ireland and the Crown Dependencies need to be brought swiftly into line.

    —  Legislation to implement the OECD Convention must be in place by the end of 2000.

    —  There remains a need to distinguish between public officials and others for the offences of trading in influence and bribery of foreign public officials.

    —  The reverse onus provision in the 1916 Act should be included in new legislation.

    —  There should be a separate section in the legislation for the offence of bribing foreign public officials.

    —  The requirement for the consent of the Law Officers for prosecution should be abolished.

    —  There should be an urgent and thorough high-level consultation to identify weaknesses in current investigation and prosecution procedures.

    —  The jurisdiction of the Serious Fraud Office should be extended to include corruption.

    —  Inland Revenue confidentiality rules should be relaxed to facilitate prosecution of corruption.

  We believe that each of the above points could lead to a recommendation by the Committee.

  (iii)  In TI-UK's second submission, it warmly welcomed and strongly supported the Government's view (para 2.23 of the Paper) that the UK should assume jurisdiction over its nationals for offences of corruption committed abroad. In TI-UK's view, this is the only way to make the criminalisation of bribery of FPOs effective. The principal reasons for this were well summarised in the Paper (para 2.23) and stated by the Rt. Hon Jack Straw in his foreword to the Paper:

    —  Corruption knows no boundaries.

    —  It is sometimes difficult to pin down the physical location at which a corrupt transaction has taken place.

    —  The law has to catch up with the realities of modern technology in business.

    —  Without this change, acts of corruption committed by UK nationals or UK companies wholly outside the jurisdiction (i.e. the normal practice for bribes to FPOs) would not be covered.

    —  The UK's willingness to consider the extradition of its nationals is not an answer, because states where extortion and bribery are common will seldom prosecute and the unlikelihood of a fair trial and the risk of inhuman punishments would preclude extradition to many such states.

    —  To assume nationality jurisdiction sends a strong deterrent message that the UK is determined to act against corruption, backs up existing codes of conduct and puts beyond doubt the UK's commitment to join forces with the international community in the fight against corruption.

  (iv)  Until there is fresh legislation in the UK, the OECD Convention has no direct and immediate impact on UK law, which remains as ineffective as it has been for the past century.

  (v)  In similar terms to our earlier paper to the OECD review process, we wrote: In order to comply with the OECD's Anti-Bribery Convention the government should immediately enact legislation (either as a separate bill or as part of the Financial Crimes Bill) creating the offence of bribing a foreign public official and assuming extraterritorial jurisdiction as proposed in the Home Office paper (Cm 4759).

3.h  The exclusion from development projects of companies and individuals which have been disbarred by the World Bank, or have been subject to legal proceeding, on the grounds of corrupt or fraudulent practices
  (i)  Disbarment of companies by IFIs on ground of corrupt and fraudulent practice is likely to be on a rising trend in the next few years. The possibility of disbarment without a court first finding the company at fault was adopted by the World Bank in 1998. The process by which debarment takes place includes a special audit and reference to a specialist committee constituted for this purpose. Other IFIs, including the AfDB, have subsequently adopted similar strategies.

  (ii)  As of mid-October 2000 more than 50 companies have been debarred by the World Bank, either indefinitely or for a period of five years. (Debarment applies also to any company which owns the majority of the capital of a debarred company). Most are thought to have been small consultancy businesses, several operating in Nigeria. One was a company understood to have employed around 500 people (Case Technology Ltd. of Watford) which was involved in a bid to supply a banking telecommunications network for the Central Bank of Turkmenistan.

  (iii)  TI-UK welcomes the initiation of this procedure, recognising that a range of instruments is necessary if corrupt practices are to be curbed. The risk of disbarment from important contracts should be an important deterrent to companies who might otherwise accept the risk of paying a bribe as manageable.

  (iv)  There are of course dilemmas associated with this process. One is the need for a right of appeal by a company which may consider that it has been unjustifiably debarred. A second is the dilemma posed by a divergent view of whether corruption has occurred between a court and an IFIs internal procedure. It is possible that the finding of a court may not be substantiated by an internal assessment. It appears that the World Bank is trying to guard against exactly this possibility in its response to the Lesotho Highlands Water Project case in Maseru.

  (v)  However the disbarment instrument should prove a very powerful one. In order to strengthen this process the next stage could be an information sharing agreement between IFIs, donor agencies and export credit agencies so that each could assess the quality of evidence and use it in its pre-qualification procedures. A second stage, when the validity of these is accepted, would be a mutually binding agreement to disqualify debarred companies from each others tender procedures.

3.i  Measures to combat money laundering of the proceeds from corruption
  (i)  TI has maintained for several years that money laundering is as relevant to the proceeds of corruption as it is to the drugs trade. The large sums associated with commissions paid through grand corruption frequently find their way to haven financial jurisdictions, whether these are on or offshore. The fact that the commissions paid on the Lesotho Highlands Water Project were paid into Swiss Bank accounts is a perfect illustration of this. The City of London may also be described as a haven given the case in 1999 involving funds syphoned from Russia but held in the Bank of New York in London, and the report in 2000 of the Swiss Federal Banking Commission on the funds held by the Abacha family in Switzerland, over half of which had been channeled through a miscellany of London-based banks.

  (ii)  The role of these havens has been explored in depth by three reports published in 2000: the latest report of the Financial Action Task Force (FAT-F) of the G7, and new specific reports by the OECD and the Financial Stability Forum (also a G7 instrument). These collectively identify a total of between 25 and 35 havens whose regimes are attractive to those wishing to launder funds derived from a series of illegal activities, one of which is large scale corruption. The reports grade the centres by degrees of lack of regulation, focusing particularly on the question of whether secrecy is easily obtained, and how difficult it is likely to be for a request to freeze assets in the event of a criminal charge being brought against a depositor. Unfortunately the OECD report also chose to focus on the issue of differential tax rates, which the centres can legitimately claim is a sovereign choice, and on this basis a group of OFCs have lodged a claim with the WTO against unfair discrimination by the OECD.

  (iii)  The UK has been seeking to use its influence with the Crown dependencies to correct the lack of adequate regulation in their regimes, and has threatened to exercise more political control if such improved regulation is not adopted. This is an important step and in fact several of the OFCs in question have changed their regulatory regime in a positive direction in the recent past and the Financial Stability Forum report in fact described Jersey, Guernsey and Isle of Man as being in the top bracket which includes Luxembourg, Switzerland and Singapore. However there is no doubt that the UK should continue to exercise its leverage with other centres in its quasi jurisdiction, notably the Bahamas, the BVIs and the Cayman Islands.

  (iv)  The role of banks and professionals within the UK remains controversial, especially after the Lesotho and Abacha cases. We have found that there is a surprising lack of awareness that anti-money-laundering legislation extends to the proceeds of foreign corruption. This ignorance needs to be addressed. We suggest that the Financial Services Authority (along with professional bodies such as the Institute of Chartered Accountants and the Law Society) should take responsibility for this. It fits with the FSA's statutory responsibility for reducing financial crime, which includes crime such as corruption committed abroad.

  (v)  The fact that banks and professionals in this country may have laundered the proceeds of corruption is more due to lack of enforcement than to deficiencies in the anti-money-laundering legislation. The PIU report recognises this in paragraphs 9.16 and 9.31. This lack of enforcement is because the offence of money-laundering is considered to be difficult to prosecute; and this is chiefly because of the need to prove the underlying offence. Authorities invariably prosecute the underlying offence rather than the money laundering offence. (In fact, prosecution should not necessarily be all that difficult, as the sums involved are usually out of all proportion to an accused official's legitimate wealth).

  (vi)  The problem is compounded by a lack of coordination. As a result there have been few prosecutions for money-laundering generally. As far as we're aware, there have been no prosecutions specifically for laundering the proceeds of foreign corruption. The PIU report suggests that NCIS should work with the FSA to tackle institutions suspected of money-laundering (see para 9.40, etc.). We endorse this but it only goes part of the way to achieving a coordinated approach.

  (vii)  The FSA itself will only have power to prosecute for breach of the money-laundering regulations, which require procedures to be put in place to detect and report money laundering. Its powers will not extend to prosecution in connection with the offence of money-laundering per se. We recommend that a suitable, adequately resourced authority should be given unambiguous responsibility for prosecuting such offences, working in liaison with the FSA.

  (viii)   Generally, it is our view that greater effort needs to be given to the fight against money laundering, and to ensuring that money-launderers are prosecuted. High-profile convictions for laundering the proceeds of foreign corruption will help to change attitudes. See also our submissions in relation to 3(e) above.

3.j  The role of companies

3.j.1  Corporate "best practice" codes and conduct
  (i)  As discussed in Sections 2.b and 2.c, the perception of some MNCs of the role they can play in providing significant leadership in the fight against corruption has been heightened in the late 1990s. The opportunity for companies to do more in this respect is probably greatest where an incoming government has made a commitment to step up or initiate a fight against corruption, but where it needs the effective support of the corporate sector to do this. Nigeria is a key example of this in the recent past, but in fact there has been little proactive response from either local or international companies. In practice such Governments are left to work with public sector initiatives focused particularly on Anti-Corruption Bureaux, reform of the judicial system and procurement.

  (ii)  A number of companies are now leading the way with meaningful corporate codes which are more than mere pieces of paper. The International Chamber of Commerce rules have already been mentioned in 3.f.4. Companies may consider, in the short term, adopting those as they stand if they do not at present have their own purpose-designed code covering wider ethical issues. Best practice, which could be more widely shared, includes:

    —  ensuring that corporate Codes of Conduct which are formally issued at headquarters are not only circulated within overseas subsidiaries but also disseminated locally amongst their people, accompanied by practically oriented training as to their application; with the public being requested to bring any breaches to the attention of senior management;

    —  ensuring that the principles which underlie such Codes are understood and adopted by Join Venture partners and that such joint venture relationships are not used by any party as a way of circumventing the principles;

    —  ensuring that companies' own systems of local procurement are free of corruption and that any culture of backhanders is resisted;

    —  taking action against employees found to be engaging in corrupt business practice, and ensuring that this becomes widely known; and

    —  withdrawing, in extremis, from business environments which are so corrupt that continuance is only possible by compromising basic principles of business integrity, and publicising the reasons (Unilever's withdrawal from Bulgaria, "because it was impossible for us to do business without getting involved in corruption," is a good example);

3.j.2  Integrity Pacts

   In relation to procurement procedures, TI has since its inception been promoting the concept of an Integrity pact to be applied to the bidding procedures surrounding major capital projects or privatisation projects. The essence of this approach is that companies, in order to prequalify for a particular tender, commit to not paying a bribe either to obtain the contract or during its execution. Those against whom they are bidding have a means of redress if they have reason to believe that the process has been subverted. The process is monitored by civil society groups, including TI chapters. It has been applied with success to privatisation in Panama, to the current extension of the underground in Buenos Aires, and is about to be applied by the City government in Milan. The most important application in the near future will be in the context of the Millennium road project in Colombia which links Bogota to the Venezuelan coast and is financed to a total value of $1 billion. Experience to date suggests that this approach may have an increasingly important role in the next three to four years. In practice the active support of companies which are key to the bidding process is necessary for the approach to be successful.

3.j.3  Corporate transparency processes

   Looking beyond this approach, recent discussions in which TI-UK has been involved have focused on the opportunity for MNCs operating in corrupt environments where government budgetary information is minimal and obfuscatory, to state publicly the total amount of payments they make to the state through taxes and other forms of fiscal transfer. Such an unequivocal statement would make it very difficult for governments to maintain special accounts or for significant fiscal revenues to be diverted to private ends. In doing this, companies would be doing no more than declaring information which is routinely in the public domain (via Companies House) in the UK and it is difficult to see why one standard of transparency should apply in the OECD world and a different one in the developing and transition economies.

3.j.4  Private sector recommendations

  We recommend that the Government, possibly via the DTI, should strongly encourage companies (a) to develop, disseminate and implement codes of conduct which cover bribery and extortion explicitly and with practical guidance; (b) to seek opportunities to associate with other organisations working in the same countries with a view to collective resistance of corruption; and (c) to publicise the problems of working with integrity in countries where it is very difficult, and in extremis to consider withdrawal.

Transparency International (UK)

October 2000

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