Examination of Witnesses (Questions 323
TUESDAY 9 JANUARY 2001
323. First of all, can I welcome you all this
morning and thank each one of you for coming this morning but
also for giving us some excellent evidence on this difficult subject.
You will understand that we are investigating this subject because
we have been convinced that corruption is actually a very serious
deterrent to foreign direct investment and, indeed, internal investment
in Third World countries, or any country, not just Third World
countries. Therefore, the International Development Committee
is vitally concerned, of course, to make certain that all the
conditions in developing countries are conducive to direct investment.
Corruption is named as one of the major deterrents against such
investment, both from internally generated funds and from foreign
sources. That is our interest. We are going to have to be very
disciplined this morning because there are a lot of you and you
have a lot to say I know and we have a lot of questions for you.
One of the reasons why we have unfortunately kept you waiting
slightly is that we were concerned to cut down the number of questions
we were going to ask you in order that we can get through the
business and get to the core of the problems we are facing. The
structure this morning is that we have got some generic questions
to ask which any one of you can contribute to and then we are
going to hurry on to specific questions which concern your own
particular companies which have come out of your written submissions.
I say, again, I would like to thank you for what has been a considerable
amount of work on the part of your staff and yourselves to produce
the written evidence you have given to us. Can we start, therefore,
straight on with the questions and I have asked my colleagues
also to be as short as possible in asking you questions as I hope
you will be as short as you can be in answering ours. Can I ask,
first of all, about the role of the private sector. The questions
I want to ask under this heading are in three sections. What role
does the private sector have in tackling corruption in countries
where it is endemic and what examples of best practice are there?
Perhaps I can put all three of them to you so you have time to
think about them and then which of you would like to answer the
questions. How effective are integrity pacts in eliminating corruption?
Could these be extended to industry-wide agreements rather than
one-off pacts negotiated for specific contracts? Under what conditions
can links with local chambers of commerce and anti-corruption
coalitions be effective in the battle against corruption? Who
would like to volunteer to begin with and answer one or more or
all three of those questions?
(Mr Welton) Chairman, could I volunteer
on the first point?
324. Yes, Mr Welton from Balfour Beatty.
(Mr Welton) The role of the private sector and examples
of best practice in how that can be improved. Certainly the public
opening of tender bids is a fundamentally important process.
(Mr Welton) The US style of tendering, particularly
for public works, is an excellent example of that where there
is a public opening. There have to be absolute rules of the awards
of tenders in accordance with the rules and in order for the bid,
which is usually the lowest bid, to be accepted it has to comply
with those rules. There is public evidence for everybody to see,
the other tenderers as well as the public at large, that the process
is being adhered to. Now obviously some contracts are more complex
and there has to be a negotiated procedure following that but
I believe, also, that negotiated procedure should be public. The
audit trail from the original public opening of the bid process
through to the final award is an absolute fundamental. The US
style of conducting that business in most public works is an excellent
example of that.
326. In developing countries is the American
practice used to any great extent?
(Mr Welton) It varies enormously. In some cases it
is used and in many cases it certainly is not.
327. That is an example of best practice.
(Mr Welton) Indeed.
328. Which you would be advocating to those
countries in which you are seeking a contract, is it?
(Mr Welton) Very much so.
329. Yes. Mr Phillips from Crown Agents.
(Mr Phillips) Chairman, I would make the obvious comment,
I think, that the role of the private sector or the absence of
the private sector in many countries is a way of responding to
or indicating the severity of corruption in many of the countries
in which we would otherwise be investing.
330. Yes. If you have very little private sector
it is because of corruption?
(Mr Phillips) Yes. Often.
331. Any other points. Mr John Bray?
(Mr Bray) Perhaps a broad point. I had a conversation
with somebody from Transparency International in Zimbabwe, it
was two or three years ago. He made the point that the very word
corruption within Zimbabwe was even then a politically sensitive
issue and then that if a domestic company even used the word or
raised it as a concern that was regarded as politically partisan
in some ways whereas if an international company said "This
is our best practice and we have to follow certain practices because
that is what head office says we have to do" then that was
more likely to be accepted. The point, therefore, being that being
a model of best practice and applying that model in all your dealings,
for example with your own subcontractors, is in itself a very
important role which companies can play.
332. Yes. Dr Reg Hinkley, Vice President and
General Auditor of BP.
(Dr Hinkley) Yes. I think I would really just like
to reinforce a couple of points which have been made. I think,
firstly, it is the bidding process or tendering process, which
ensures transparency, that is important; and, of course, in the
major areas in which we are involved, particularly in the upstream
licensing processes, for example, there is a very strong competitive
process. I think the other side of this is really the occurrence
of companies like ourselves in the local communities through time.
We do have, through the behaviours of our staff and the code of
ethics within which they operate, the opportunity to demonstrate
good practice continuously and as a company that is what we do
strive to do.
333. Yes. That in itself, good practice, practice
by you in the companies itself, is an example and an influence
on the way business is conducted. It is very important that you
keep up your standards.
(Dr Hinkley) Yes.
Chairman: I am going to hurry on to deal
straight away with the culture of corruption and political corruption
too, which Piara Khabra is better qualified than me to question
Mr Khabra: I want to talk about corruption
in developing countries. As you know Corner House challenges the
idea that there is a "Third World culture of corruption"
and argue that much of the bribery by Western companies is underpinned
by the incorrectly held view that "bribery is the way one
does business in the South". BP also said "the distinction
between what constitutes corruption and legitimate business incentives
can be difficult to draw for a manager working in different cultures".
I find it very difficult to understand what is the distinction
between corruption and legitimate business. I think in my personal
view legitimate business is an excuse to indulge in corruption.
What we have been told is that it can sometimes legitimately draw
a distinction between corruption and legitimate business incentives
especially where there are cultural differences. What examples
are there of situations where it is difficult to draw a distinction
between corruption and local practice? Are Northern businesses
ever guilty of lowering their standards in developing countries
in the mistaken assumption that it is culturally appropriate?
My view is that if companies with that sort of mentality go into
developing countries to do business they are already prepared
to indulge in corruption.
334. Now, since you have been named, BP, Dr
Reg Hinkley, would you like to start the answer to that perhaps?
(Dr Hinkley) Yes. Well, I think I would have to start
by referring back to the policy which we have circulated to you.
I can only say that policy derives from guidance and, indeed,
boundary conditions that are set by our board. We, as employees
of the company, are bound to operate within those guidelines.
The papers we sent you are the expression of those guidelines
that we pass to all our managers and they are bound to operate
within them. You used a number of terms in your question which
I think we want to draw out. First of all, you talked about bribery.
There is an absolute bar on bribery. We ensure through various
enforcement procedures through the company, in which obviously
internal audit plays a major part that bribery is in no way condoned
and, indeed, conducted. I think the allusion to local culture
plays against the differences that we see in local practices where
it is not so much a question of difficulty but the judgments which
have to be made in many circumstances as to whether the form in
which you do something complies with the policy. Those judgments
are made continuously and we try and provide as much support to
our staff to make those judgments within the right frame of reference.
Certainly we start from the proposition that there is a policy
in place, we expect our staff to operate within it. At times difficult
questions come up and we seek to resolve those consistently with
335. Can I ask you a question particularly about
India. I come from India. I do not consider that it is right to
say that there are practices which are corrupt, there is a culture
which is corrupt. It could be that we find in a democracy where
politicians are involved and the electoral system as such, the
election expenditure and all those things put together, there
is a situation where it is at the top that corruption exists,
not at the bottom in the society at all. To use the word "culture"
also in my view is wrong because I do not think there are open
practices where corruption is encouraged. I think it is the business
people particularly who are the ones who are very much involved.
It may be that you have more experience of dealing with those
businesses rather than to call the whole society corrupt.
(Dr Hinkley) I agree that one has to be very careful
about sweeping generalisations here, that is a very fair point.
My background is BP, my direct experience of India is relatively
limited. As a sort of general proposition I would have to come
back to say in practice our people in those sorts of situations
are endeavouring to ensure that in their local business dealings
they are operating within the policy. They have found that in
many, many cases they can operate within that policy. That is
the ethos within which the company works.
336. Did you want to add anything?
(Mr Phillips) Yes, I would, if I may. The reference
to, if you like, a culture of corruption, we talk in developed
countries about a culture of compliance. I think that one of the
things is that it is not so much that there is a culture of corruption
but there is a power beyond prosecution in many of the countries
in which we operate in the developing world where the chances
of a particular case reaching prosecution and appropriate deterrent
action or sanctions being taken is relatively limited. Whereas
the environment in the UK and elsewhere is very much more that
you do know, you do believe, that if you commit a corrupt act
the chances of you being found out and/or prosecuted for it are
very, very much higher. I think it is not a social thing, it is
the environment in which operations are conducted.
337. Mr Williams, you have spoken in your written
evidence about this area in terms of the necessity to pay what
you call "facilitating sums of money" of what you describe
as a minor nature, like getting your goods through customs sheds.
(Mr Williams) Yes.
338. Is this a problem? The difficulty of drawing
a line between facilitating and bribery is not easy, is it?
(Mr Williams) It is not easy but, let us face it,
that is what competent managers are supposed to do. My position
is quite clear. There is no such thing as a sliding scale of toleration
of corruptibility. I think in terms of our code, I suspect along
with many of my colleagues on the platform, it is an absolute
prohibition and bar to bribing officials for advantage on pain
of dismissal, summary dismissal. The issue of facilitating payments
is an interesting one. Certainly we do not encourage them, we
discourage them. We actively discourage them in business. The
phenomenon cannot be ignored, we would be being naive if we did
ignore it. After all, the OECD in their guidelines, the International
Chamber of Commerce in its are all seeking to ring fence this
as a particularly difficult area, and it is. How do we cope with
it? We try and have a white line, as white a line as possible,
because otherwise it would not be fair on our own managers. That
white line is these payments have to be very, very modest in nature.
They have to be directed towards the achievement of something
that the official in question is supposed to do anyway. Most importantly
they have to fall fully within local custom and practice, to be
transparent and to be public. In that context, if they are otherwise
unavoidable they will be tolerated, tolerated only, never encouraged.
339. Your local company board would they have
to authorise this?
(Mr Williams) They would.