Examination of Witnesses (Questions 340
- 359)
TUESDAY 9 JANUARY 2001
MR DAVID
PHILLIPS, MR
IAN WHITE,
DR REG
HINKLEY, MR
MIKE WELTON,
MR STEPHEN
WILLIAMS AND
MR JOHN
BRAY
340. They would. No question of undertaking
facilitation, it has to have the board approval of the local company?
(Mr Williams) Certainly of the chief executive, the
local chairman and/or his board.
Mr Robathan
341. I want to pursue this slightly further
with Dr Hinkley, if I might. You have just said small payments,
Mr Williams, so what we are talking about is small bribes, that
is how it looks to me. If I was one of your managers I would have
a problem. I know you pray in aid the OECD and the Foreign and
Corrupt Practices Act, or BP do. Let me just quote you, Dr Hinkley.
Examples include small payments to enable or speed up legitimate
processes such as clearing goods through customs. If I was one
of your local managers at either Unilever or BP and I happened
to be hanging around and someone said these small payments were
normal I would think that I was bribing a customs officer to get
the clearance of goods. Now perhaps I am naive living in London,
and I hope leading a relatively ethical life—I hope—but
perhaps somebody might explain to me what the difference is between
giving a customs officer money to clear goods through customs
as a bribe and giving them money to clear goods through customs
as a facilitating payment?
(Dr Hinkley) I think our position is very similar
to that which Mr Williams has espoused of his organisation. We
do not start from the proposition that we want to make facilitation
payments.
342. Why do you not refuse to make them?
(Dr Hinkley) I think the point is that we are in certain
situations where it is custom and practice and we have to make
judgments about the legitimacy of them in that context. I think
Mr Williams drew a distinction which I also draw between doing
things which are clearly against the law or clearly designed to
achieve unfair advantage or non commercial advantage versus practices
which are essentially about timing. It is unfortunately the case
that in some parts of the world officials have an influence to
delay transmission of goods or services through certain procedures.
It is normal practice in that community to facilitate the normal
course of business. As I say, we try to discourage this wherever
we can. Our staff are required, as in Mr Williams' case, to make
these things transparent and they do require the authorisation
from, in our case, business unit leaders so that what is going
on here is seen to be reasonable overall in the light of a particular
situation we are dealing with. We are talking also about very
small payments.
343. Surely by accepting this as custom and
practice that is the beginning of a slippery slope?
(Dr Hinkley) No, I do not think it is the beginning
of a slippery slope. It is certainly not something that we like
but I do not think you can say "Well, we extrapolate this"
and then say "Well, that justifies bribery, illegal acts"
or whatever else, it does not.
(Mr White) I am just a little concerned at the issue
that is being raised here of facilitation payments. I do not see
how you can differentiate between facilitation and bribery.
344. Nor do I.
(Mr White) Basically there is a rule of law. The law
says there should not be any additional payment. What one has
to do is to stand firm as the international representative of
a company and refuse to pay those kinds of bribes because you
are just perpetuating the system to make that bribery turn from
something to speed the process up into something that says "Well,
you pay less duty if you pay me some money". I do not see
how you can differentiate in that way at all and I am a little
shocked to hear that kind of approach being made.
(Mr Williams) I think I really have to come back on
that misrepresentation of what I said. There is no part of this
company's policy to do anything which is against the law in any
jurisdiction at any time.
(Dr Hinkley) Ours is the same.
(Mr Williams) At any time.
(Mr Bray) Perhaps I could make some clarifications
on the legal definitions. The definition Mr Robathan quoted was,
I believe, from the Foreign and Corrupt Practices Act. The distinction
in law is that that Act is against bribes to secure a business
or a business advantage and that Act is saying that these are
different. However, there are legal problems, and I think they
have been hinted at earlier on, which are that in many of the
countries where these facilitation payments are made they are
illegal under domestic law. Therefore, in some of the guidance
which is given in different codes to managers: "you may pay
such facilitation payments as long as they are legal", it
is often a contradiction. There are real problems and there are
problems of explaining both to your employees what the difference
is, the fact that we are having these difficulties reflects that,
and there are problems, also, in explaining to somebody who might
demand a bribe that, yes, you will pay one kind of payment but
not another. Therefore, our recommendation would be resistance,
and resistance I think is a key word even in places where illicit
payments are customary, but at the same time we do have to recognise
that people are put under pressure. I think the word extortion
has to be brought in here. In the case of customs there are some
kinds of customs hold ups which amount to a kind of commercial
extortion. An example would be where a mining company has equipment
which would lead to great delays, and if it is held up for one
day it costs thousands of dollars, whereas the payment being demanded
is actually quite small. In that kind of situation the manager
is put under really quite acute pressure. The solutions are, first
of all, that the company needs to know what is going on and, therefore,
there has to be a very good communications system. The solution
may be in that case to take up the problem at a higher level than
the junior customs official, and that is something which large
companies are often in a stronger position to do than small companies.
345. Like Unilever and BP?
(Mr Bray) Yes, and as a matter of practice I think
they do.
Mr Worthington
346. I am very puzzled by this emphasis on transparency.
It has to be open within a situation of where all firms clam up
all the time for commercial confidentiality. I do not see how
you can have transparency and commercial confidentiality at the
same time. In the case of Balfour Beatty or BP or any company,
you would not be arguing, would you, that all the details in the
contract should be made open to the public?
(Mr Welton) No, of course not.
347. Why not?
(Mr Welton) Because there is commercial confidentiality
and this is one of the constant balances that any modern company
has to constantly be aware of. It has to balance between its own
confidential behaviour versus its competitors and transparent
behaviour which shows that it is a responsible company and it
is responsible to the public at large and is representing properly
its shareholders' interests.
348. I suppose one gets most upset when it is
a public resource where it is, say, an extractive industry or
where a dam is being built and one does not know where the money
is going. One cannot think of any contract that has ever been
awarded where you can see where the money has gone.
(Mr Welton) I think you should be able to see in broad
terms where the money has gone because you can actually see the
volume of work that is being carried out and what is a fair and
proper rate for that work, even in complex projects. That is easily
compared from one company to another, one government to another,
one authority to another, and consultants, for example, test such
things every day of the week. It is possible to make judgments
whether sums of money paid for contracts are fair and reasonable.
Inevitably there will be some flexibility in that but you can
certainly examine whether it is a fair and reasonable sum or it
is, indeed, an outrageous sum.
Ms Kingham
349. I would like to come back to the issue
of the facilitation payments or similar bribes. Crown Agents,
you have been involved in helping to fight corruption and work
with the Mozambique Government in reforming their customs operation
there. You said that you do not make a distinction between facilitation
payments and bribery. Does that mean then that the actions of
companies such as BP or Unilever by engaging in these kinds of
activities in future will be jeopardising the long-term sustainability
of your project there? Obviously when you pull out these kinds
of operations will still be going on and that must undermine the
integrity of the kind of work that you do surely?
(Mr White) That would be precisely what concerns us,
Chairman. We are trying to create a transparent and open system.
What we want to encourage is companies who are forced or feel
coerced to pay bribes to report that to the relevant authorities
wherever possible. The process is sometimes slow and there are
emergencies. In a modern customs service what you do is build
and design services to enable emergency goods to pass quicker.
It is much better to do it that way than to try and create artificial
avenues to break customs procedures. Yes, it would certainly undermine
what we are trying to do in Mozambique.
350. Are any discussions going on at the international
level between donors to try to co-ordinate these activities with
the private sector to ensure that the integrity of donor projects
internationally are being sustained?
(Mr White) I would not say particularly at a donor
or international level, although we have had discussions with
the International Monetary Fund on this and the World Bank and
with DFID who are part funding our contract in Mozambique. What
we do do, however, is talk very much to local businesses, both
international representation and local companies, to try and instil
in them the ability to want to complain and to make a point when
they are being asked for bribes. Creating an open atmosphere and
creating the sense that if people do complain they have an avenue
and route whereby redress will be guaranteed is a much better
approach to this whole thing. It seems to me that you are on a
very slippery slope, as I think someone said earlier. Making a
facilitation payment or "speedy money", as it is quite
often called in Africa, is just the same as paying a bribe in
any other society. You are just encouraging that whole under the
blanket approach to continue.
Mr Khabra
351. Who are the beneficiaries of this sort
of corruption: the Government officials and up to what level?
Is it not that there is some sort of collaboration between the
company's officials to negotiate the corruption with people who
are in a position to help you to start the business actually?
You used the word "slippery slope" situation, is it
a slippery slope situation that you cannot get out of?
(Dr Hinkley) I can only go back to what I said earlier
on. I do not think it is an unavoidable slippery slope here. There
are real boundaries. The policies we have put in place describe
absolute boundaries in the same way that Mr Williams talked about.
We are talking about situations which are by their nature small
which arise in day to day life where local custom and practice
is difficult to avoid. I fully take the point which says that
over time this is something we want to minimise and ultimately
eliminate. Our stance is no different from Mr Williams' stance
on that. Generally it is a local issue and it is not something
that we look at systemically through the whole of the culture.
(Mr Bray) Can I just quickly take your question about
who benefits. The answer is that it varies. It is often an opportunist
act on the part of the official, the minor official, but sometimes
it is actually quite systemic, there is a parallel system where
funds are paid upwards to more senior officials though collected
by junior officials. That brings up the phrase "avenue and
a route" from our colleague from the Crown Agents and your
earlier comment about culture. We are not talking about values,
we are talking about institutions. What the Crown Agents are doing
is trying to create and reinforce institutions. Where those institutions
do not exist then companies are in particular difficulties. What
companies need to do is to find avenues and routes, and that may
involve a bit of determination on their part assisted by other
elements of civil society and government support.
Mr Robathan
352. I am sorry to dwell on this but I think
this is a very important issue. Dr Hinkley, you have made it very
clear that you do not like these facilitating payments, listing
your potential risks they include personal exposure to criminal
laws.
(Dr Hinkley) Yes.
353. Now I am not talking Heathrow, although
there is no reason why the analogy should not be made to Heathrow,
but what you are talking about is a big company with the money
and the clout who ought, above all others, be it Unilever or BP
or Balfour Beatty, to be standing up to petty corruption, because
that is what it seems to be to me. You have some poor official
who is perhaps paid a dime and is trying to make a dollar through
charging more. I understand all the difficulties, we all understand
the difficulties. But the only way to change the institutionalisation
of this is for big companies to say no. Now actually you can afford
to pay because it is a few dollars on your balance sheet, it means
nothing to you. Do you not understand—of course you understand—I
would like you to comment on this, this is completely distorting
the system because the small person cannot pay and it is the little
companies who are trying to make their way through, reporting
the customs officials for instance or whoever it is, who suffers.
Surely you have a responsibility as the big companies to stand
up and say "no" with these pacts or whatever it might
be?
(Dr Hinkley) I think we accept a general responsibility
to say no wherever we can.
354. Why can you not, always?
(Dr Hinkley) No, we cannot always because the practical
circumstances of individual situations are at issue. We are talking
about transactions where so far there is not a general international
proscription which solely derives from the practicalities. It
is not a matter of principle. I think we have stated very clearly
that we do not like making facilitation payments and we try to
resist them wherever possible. Picking up some of the earlier
points, if we have the opportunity of exercising influence at
more senior levels then we will take those routes as well. I think
that is a very fair point. But we do not think at the moment it
is practical for us to end up with an absolute proscription of
this sort of thing given the state of the world as it is today.
That is what we are saying.
Chairman: I am going to move on to some
of the attempts to change the situation, the OECD Convention and
the implementation in UK law. Andrew Rowe will lead us on that.
Mr Rowe
355. Thank you, yes. I must say I think this
Committee has been somewhat shocked to discover that contrary
to what we were led to believe at the beginning the UK is actually
more relaxed in its legal regimes than many other countries about
the toleration of corruption. For example, Transparency International
are very critical of the way the Government has actually implemented
the OECD Convention. I think we were found by the OECD to be probably
the least effective country of the OECD. What I would like to
ask any of you is how will the changes in legislation the Home
Office is proposing to implement in the OECD Convention affect
business and will they be an effective deterrent?
(Mr Welton) I think the first comment, Chairman, would
be that whatever actions are taken must be multinational and the
OECD, as a multinational organisation, obviously has a better
chance of succeeding than an individual state making a particular
stand. It is absolutely essential that as many nations as possible
buy in to the process whatever that might be to reduce or eliminate
corruption. Our comment on that would be that we would support
it and we would support the UK Government's support, should it
come, of that. Most of us that are represented here are in some
shape or form multinational. We are subject to the laws of other
countries as well as the law of our own country and we are used
to that. We would support whatever moves are made as long as they
have teeth and can be practically implemented.
Chairman
356. Was it you, Mr Welton, in written evidence,
who said you were disappointed not to find such legislation in
the Queen's Speech?
(Mr Welton) No, it was not.
357. One of the written evidence said that.
Mr Bray, did you say that?
(Mr Bray) No, but I would now say that. It is a good
idea.
358. Did you want to make another point?
(Mr Bray) If I may. I very much endorse the multinational
side of it and that, indeed, is one of the main assets of the
OECD Convention. Therefore, it would be good if the British Government
played its role in its side of the multinational initiative. Just
some further comments. The OECD Convention was never going to
be a silver bullet which was going to solve the problem, it is
one of a variety of instruments. It will take time to make a real
impact. It will take time because the various countries, including
our own, have to get their legislative acts in order. It will
also take time because international investigations take a lot
of effort and money so the impact will be cumulative. We are at
a very early stage. I do not think that the fact that movement
has been slow is a reason for pessimism. There is one aspect I
would like to stress, though, which is the extent to which the
OECD Convention is actually a benefit for business and it is a
benefit because it gives an alibi, that is to say a justification,
for resistance. If as a company you are approached by somebody
demanding a bribe, it is a very strong advantage to be able to
say "Look, I cannot pay, because if I do I will be prosecuted
and I personally may go to prison". I think companies tend
not to give sufficient stress to that, they talk about competition
and they suggest they will be at a competitive disadvantage. I
would like to suggest they are at a competitive advantage if they
are backed by this kind of legislation.
Mr Rowe
359. I wondered if our witnesses shared our
surprise that there have been so very few, almost none, successful
prosecutions for corruption in the UK courts? Very extraordinary
I would have thought.
(Mr Bray) On the question of prosecution for international
offences, I am not a lawyer but my understanding, backed by the
Institute of Advanced Legal Studies, is the law does not stand
up and, therefore, there have been no prosecutions.
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