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 http://govaffairs.senate.gov/110999/report.htm).
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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