ATTACHMENT 1
TI WORKING PAPER:
Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions (OECD) Evaluation
of Implementation by the United Kingdom
This memorandum evaluating the implementation
of the OECD Convention by the United Kingdom is submitted on behalf
of Transparency International, International Secretariat Berlin,
by the TI Working Group on the OECD Convention; Fritz Heimann,
TI USA, Peter Rooke, TI Australia and Michael H. Wiehen, TI Germany.
INTRODUCTION
1. This paper comments primarily upon the
text of the OECD Convention, but takes account, where appropriate,
of the Commentaries on the Convention adopted by the Negotiating
Conference on 21 November 1997 ("the Commentaries")
and the Revised Recommendation of the Council on Combating Bribery
in International Business Transactions adopted by the OECD Council
on 23 May 1997 ("the Recommendation"). It will be referenced
to the numbered articles of the Convention.
2. No attempt has been made at this stage
to analyse differences between the laws of England and Wales and
those that apply in Scotland and Northern Ireland. Undoubtedly
there will be differences, but for the purposes of the Phase I
evaluation only, assumptions will be made that the principles
applying in each country are broadly the same.
GENERAL
3. The UK Government has consistently maintained
that the UK's existing laws are sufficient to enable the UK to
comply fully with the obligations of the OECD Convention. TI disagrees
with this view. The basis of the Government's opinion has not
been made public. It is thought to be based upon an interpretation
of the Prevention of Corruption Act 1906, supplemented by recourse
to English common law. The 1906 Act now appears rather antiquated
and outmoded. The common law offence of bribery is of uncertain
effect and scope. Reliance cannot be placed upon the combined
effect of the 1906 Act and the common law offence to found an
international corruption offence. Reference to the Hansard report
of proceedings in Parliament relating to the Bill that became
the 1906 Act, indicates that the principal purpose was to deal
with private to private corruption; nowhere is it suggested that
the Act was intended to deal with bribery of foreign public officials
(FPO). It should be noted that the UK Law Commission, set up for
the purpose of promoting the reform of the law in England and
Wales, has recommended the abolition of the separate common law
offence of bribery.
4. Even if, by deduction of highly technical
argument, it could be demonstrated that some component or components
of action leading to the bribing of a FPO amounted to an offence,
there would remain insuperable hurdles to successful prosecution
because of the UK's traditional adherence to territorially-based
jurisdiction. Currently, a corruption offence cannot be committed
under UK law unless there is a territorial connection between
an element of the offence and the United Kingdom. TI regards jurisdiction
as the key issue to make the Convention effective. The reality
is that conduct amounting to the bribery of a FPO is likely to
take place wholly outside UK. The purpose of the Convention will
not be achieved unless the UK assumes for this offence a jurisdiction
based on nationality.
5. The Government may seek to excuse the
lack of clarity in the law and practice in regard to corruption
by referring to the fact that the Law Commission recommended in
January 1998 that the present law should be replaced by a modern
statute. An inter-departmental working party has been considering
its proposals and it is intended to publish a policy paper, which
would allow a period of consultation. Whilst there is a superficial
attraction in only legislating once in regard to a single area
of law, rather than twice within a short period, the fact is that
the Government can give no assurance as to when legislation might
be introduced into parliament with time allowed for its processing.
Law Commission proposals can remain unimplemented for many years.
To legislate to implement the Convention should be uncontroversial
and command all-party support and could be accomplished swiftly.
The Government is intent on dealing in a single piece of legislation
with UK's domestic law of corruption, the bribery of members of
parliament and the creation of a new offence of the abuse of public
office. Some of these proposals are likely to be controversial
and demanding in their requirement of parliamentary time. It is
therefore unlikely that these proposals will be enacted even in
2001-02. Implementation of the Convention merits much higher priority
(see para 7 below).
6. The Law Commission in its report described
the current legislation as "obscure, complex, inconsistent
and insufficiently comprehensive". That legislation, comprising
the Prevention of Corruption Acts 1889 to 1916, has been on the
statute book for approaching a century. So far as TI-UK can ascertain,
there has never been a single prosecution, still less a conviction,
for bribing a FPO, neither under the legislation, nor for a common
law offence. Although the Government's view for, the purposes
of OECD compliance, is as stated in the opening of paragraph 3
above, there is a more generally held view that where the offer
and payment of a bribe takes place outside of the UK, no offence
is committed in the UK. This is also, for example, the view of
another part of Government, as can be seen from the published
advice given to HM Inspectors of Taxes (see paragraph 26 below).
7. 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.
ARTICLE 1—OFFENCE
OF BRIBERY
OF FPOS
8. There is a need for clear legislation
to create this offence (see paras 3 through 7 above). Help cannot
be derived from the 1889 and 1916 Acts. References in this legislation
must be presumed to refer to public bodies in UK. It would have
been beyond the intention of parliament that non-UK bodies would
have been included. There is an argument, but no more, that the
wider concept of agency in the 1906 Act would enable some components
of an offence of bribing a FPO to be caught, but there would need
to be evidence of some parts of the offence having been committed
in UK. The consent of the Attorney General would be required before
a prosecution could be implemented. The hurdles to bringing international
conduct involved in bribing FPOs within the 1906 Act offence,
are such as would deter most prosecutors.
9. If the Convention offence were to be
clearly stated in new legislation, it would be simple to ensure
that complicity and conspiracy were also covered. Given the complexity
and obscurity of the existing legislation, it is less clear that
complicity is necessarily covered. It is noted that the 1889 Act
(unhelpful for present purposes see para 8 above) provides expressly
for acting in conjunction with another person to constitute criminal
behaviour, whilst the 1906 Act (on which the Government purports
to rely) contains no equivalent provision. The ability of UK law
enforcement authorities to prosecute for conspiracy to commit
offences in general outside the UK, has been strengthened as a
result of a provision in the Criminal Justice (Terrorism and Conspiracy)
Act 1998, but this is subject to numerous conditions and would
be more readily applied to bribery of FPOs if there was a clear
new offence of bribing FPOs.
10. In terms of the Convention definition
of FPO, it is by no means clear that all categories would be covered
under current legislation. An official or agent of a public international
organisation would not seem to be included.
ARTICLE 2—RESPONSIBILITY
OF LEGAL
PERSONS
11. Companies or other "legal persons"
are understood to be generally subject to criminal liability.
ARTICLE 3—SANCTIONS
12. TI has the impression that the domestic
law of corruption works in a generally satisfactory manner and
that there are severe sanctions in place. It is not clear that
the bribe to, and the proceeds of the bribery of, a FPO, or property
the value of which corresponds to that of such proceeds, would
be subject to seizure and confiscation. There is a provision covering
some aspects of this in the 1889 Act, but for reasons stated in
para 8 above, this is not necessarily helpful. Whether or not
the sanctions would be effective, proportionate and dissuasive
in the case of bribery of a FPO requires some informed evaluation.
Sanctions could not be effective however, unless the law governing
the offence itself is effective. TI believes that this is demonstrably
not the case.
13. In terms of additional sanctions, so
far as TI is aware, there are no such provisions in UK law. There
are some provisions in the domestic law disqualifying holders
of public office found guilty of accepting bribes, but this is
not the mischief at which the Convention is directed. Nor, so
far as TI is aware, has the Government given this matter any open
consideration in accordance with Article 3 (4). There is much
that could be done administratively (without any new legislation).
For example, steps could be taken to strengthen the anti-corruption
assurances required of applicants for ECGD (publicly funded) export
or investment credit insurance. Where a company, firm or individual
has been sanctioned by an international financial institution
(such as the World Bank) for bribery or other illicit activity,
steps could be taken to ensure that no other institution that
has UK membership, accepts their contracts for funding without
there being a full investigation of the previous alleged activity.
Similar considerations could apply to funding from the Department
for International Development and other government departments.
ARTICLE 4—JURISDICTION
14. As stated in para 4 above, it is
TI's view that the only way in which the Convention can be made
effective is by the UK adopting nationality-based jurisdiction,
in addition to its territorial basis, for this offence (see also
para 7 above). The Law Commission has proposed that the new offences
of corruption should be included in the list of Group A offences
for the purposes of Part I of the Criminal Justice Act 1993 (CJA),
which extends the jurisdiction of the English courts over offences
of fraud and dishonesty committed abroad. The Government's position
on this proposal is not known. Even under this legislation, there
has to be one component act of the offence committed within the
jurisdiction. The reality is that in significant cases of bribery
of FPOs, very great care will be taken that no action occurs in
the UK. There may be evidence of payment of a bribe to or for
the benefit of a FPO, the potential economic benefit of which
would pass back to a company based in the UK. However, there may
be no evidence of any act in the UK and no prosecution could,
therefore, be brought. The CJA would not therefore assist.
15. Likewise, it is no answer to the UK's
failing to adopt nationality-based jurisdiction, that it can prosecute
for conspiracy to commit a crime abroad. This merely highlights
the weakness of the UK's armoury to deal with the Convention offence
itself. Again there may be evidence of the substantive offence,
but not of conspiracy.
16. Nor is it an answer to claim that the
UK is more ready than many countries to extradite its nationals.
Even if true, it does not deal with many cases where there has
been major corruption. Countries where corruption is a tolerated
practice are less likely to be inclined to prosecute for corruption
offences. The UK would not extradite to countries where a defendant
would be unlikely to receive a fair trial or where inhuman punishments
are imposed.
17. The concept on which territorial jurisdiction
is founded is that UK law is intended to preserve the Queen's
peace. The notion that law and order can be breached only by activity
within the territory of a state is no longer sustainable. Immense
political and economic damage flows from international corruption.
The offence is one surely meriting equal consideration with homicide,
drug trafficking, terrorism and sex tourism, for which extra-territorial
jurisdiction is taken. The same principles should be applied
in relation to corruption offences, in accordance with Article
4 (2) of the Convention.
18. The preamble of the Convention, to which
the Government has subscribed, states that international bribery
raises serious moral and political concerns, undermines good governance
and economic development and distorts international competitive
conditions. These concerns merit the Government's taking nationality-based
jurisdiction along the lines of para 7 above. Nothing less will
render UK jurisdiction effective for the purpose of Article
4 (4) of the Convention, which required the United Kingdom to
"review whether its current basis for jurisdiction is effective
in the fight against the bribery of FPOs, and, if it is not, to
take remedial steps." The development of information technology
and speed of communication in a global economy, with corresponding
criminal misuse of systems, demand enforcement systems in the
UK equal to the criminal activity involved.
ARTICLE 5—ENFORCEMENT
19. It should be noted (see para 8 above)
that approval of the Attorney General is required before a prosecution
under the UK's current legislation. There is therefore scope for
the decision, whether or not to prosecute, to be influenced by
considerations of national economic interest, the potential effect
upon relations with another state or the identity of the natural
or legal persons involved. This would be contrary to Article 5
of the Convention and para 6 of the Annex to the Revised Recommendation.
The Law Commission has recommended that the requirement of the
Attorney General's approval should be abolished in the proposed
new law of corruption. TI would support this recommendation.
ARTICLE 6—STATUTE
OF LIMITATIONS
20. TI is not aware of any limitation.
ARTICLE 7—MONEY
LAUNDERING
21. Bribery of UK officials is thought to
be a predicate offence for the purpose of the UK's money laundering
legislation. Under the amendments to the UK Criminal Justice Act
1988 designed to incorporate money-laundering provisions, if the
bribery of a FPO in England would constitute an offence, then
it constitutes "criminal conduct" for the purpose of
the money laundering provisions. If so, the place where the conduct
constituting the offence of bribery occurs should be irrelevant.
It would be much clearer however, if there were a separate offence
as discussed above (see para 7). Moreover, the operation of the
relevant provisions is impaired because they include a blanket
defence where disclosure is made to the National Criminal Intelligence
Service (NCIS). There is such a high volume of disclosures under
this provision that it seems very doubtful whether effective action
could follow on a disclosure made in respect of an offence of
bribing a FPO.
ARTICLE 8—ACCOUNTING
22. Most of the accounting devices listed
in the Convention would probably be caught technically by the
relevant provisions of the UK Companies legislation in dealing
with false accounting, although considerations of materiality
in accounting and reporting practice may sometimes undermine this.
It is also to be hoped that a current review of company law will
call for strengthened accounting and reporting on wider issues
including internal controls. Significant progress will be made
in auditing guidelines and professional guidance, only when there
is an appreciation that to bribe a FPO is a criminal offence.
This will not occur until specific legislation is enacted.
23. Moreover, Article 8 of the Convention
needs to be read with para 29 of the Commentaries and Recommendation
V of the Revised Recommendation. Without specific legislation,
UK companies will not appreciate that they may be required to
include in their financial statements, when dealing with contingent
liabilities, information as to potential liabilities arising under
the Convention. Recommendation V requires the UK to do more than
has until now been accomplished, particularly in regard to internal
company controls. The UK is making some progress in regard to
reporting on internal controls for listed companies, which could
include standards of conduct, through listing requirements, guidance
and voluntary action. However, this does not have the force of
law and does not apply to unlisted companies. In view of the growth
internationally in considerations of corporate governance, it
is important that the UK implements Recommendation V in full.
MUTUAL LEGAL
ASSISTANCE (MLA)
24. A legal framework for MLA is in place,
but consideration needs to be given to whether it is effective.
TI is aware of concerns from authorities abroad when investigations
are required to be directed formally to the UK, that delay frustrates
progress.
EXTRADITION
25. Although a legal structure is substantially
in place, it is advisable for the Convention offence to be expressly
legislated.
INCOME TAX
DEDUCTIBILITY
26. The present position is unsatisfactory.
Tax legislation is in place to disallow as deductions payments
that are a criminal act for the payer. One of the most damaging
consequences of the Government's view of the adequacy of the existing
laws is that there is no clear offence of bribing a FPO. Therefore
the tax legislation in this respect is ineffective. The manual
of advice to HM Inspectors of Taxes states that the UK does not
have jurisdiction over a corruption offence where the actual offer
and payment take place abroad. Tax inspectors may be able to disallow
the deduction of bribes on other grounds (for example, payment
for hospitality, payment for inadequate consideration amounting
to a gift), but not specifically because it is a bribe of a FPO.
Moreover, where a payment is disallowed in circumstances that
the Inland Revenue may suspect amount to a bribe to a FPO, it
is understood they would be precluded from passing that information
to law enforcement authorities because of strict rules of confidentiality.
They are subject to a duty not to disclose information to any
other authority, except in cases of homicide, treason, terrorism
or drugs trafficking. TI would urge the Government to legislate
to give international corruption equal status with these offences.
Prepared by:
Graham Rodmell, TI-UK and
Jeremy Carver, Head of International Law at Clifford
Chance, London, honorary solicitors to TI-UK
Reviewed and adopted by the TI Working Group on
the OECD Convention
Fritz Heimann, TI USA
Peter Rooke, TI Australia
Michael Wiehen, TI Germany
November 1999
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