APPENDIX 10
Memorandum by Transparency International
(UK)
TI(UK)'S COMMENTS ON THE EFFECTIVENESS OF
THE "REVISED ECGD PROCEDURES TO COMBAT BRIBERY AND CORRUPTION".
ISSUED ON 5 NOVEMBER 2004
SUMMARY
1. In TI(UK)'s opinion, the "Revised
ECGD Procedures to Combat Bribery and Corruption" issued
on 5 November 2004 (the "November Procedures") are significantly
weaker than those issued by ECGD in May 2004 (the "May Procedures"),
and materially increase the risk that:
(a) bribery will occur in relation to projects
covered by an ECGD guarantee.
(b) ECGD will suffer unnecessary loss.
(c) ECGD managers may be prosecuted for aiding
and abetting bribery.
In particular, the November Procedures do not
fulfil the expressed commitment and intent of the UK Government
and ECGD to prevent corruption.
2. The major points of concern in the November
Procedures are:
(a) They allow the organisation applying
for ECGD support ("Applicant") not to disclose agents'
commissions if they are 5% or less of the contract price and are
not subject to the export credit.
(b) They allow the Applicant not to disclose
the name and address of the agent.
(c) They do not require disclosure of agents'
commissions if they are paid by or through joint venture or other
business partners.
(d) They do not require the Applicant to
carry out due diligence on its joint venture or other business
partners.
(e) They do not require the Applicant to
give any effective anti-corruption warranty in relation to its
subsidiaries or other companies it controls.
(f) They do not require the Applicant to
make any enquiry as to whether it, or any companies it controls,
or any of its joint venture or other business partners, have been
debarred or convicted for corruption.
(g) The entire Schedule to the November Procedures
is expressly qualified by a new definition of "to the best
of our knowledge and belief" that is so weak that it materially
diminishes the effect of the disclosures in the Schedule.
(h) The defects in the Application are perpetuated
in the Premium and Recourse Agreement.
(i) ECGD has retained grossly inadequate
post-contract inspection powers.
3. It appears that the significantly weaker
November Procedures were introduced by ECGD as a result of lobbying
from a few major customers and industry bodies. While ECGD agreed
to meet these organisations, and substantially accepted what was
requested by them, ECGD did not request views more generally from
its customers, nor from other interested parties such as TI(UK).
Had TI(UK)'s views been requested, it would have warned ECGD that
the proposed revisions were materially defective, and exposed
ECGD to significant risks. As the Secretary of State and ECGD
have now agreed to a full public consultation, TI(UK) does not
comment further in this document on the events which led to ECGD
adopting the November Procedures. TI(UK)'s comments in this document
are confined to explaining why the November Procedures are materially
inadequate, and will fail to achieve their purpose.
4. In order to understand fully the inadequacy
of the November Procedures, it is necessary to consider the context
in which anti-corruption procedures are required. In this document,
TI(UK) therefore briefly examines:
(a) the commitment of the UK Government and
ECGD to combat corruption;
(b) the case against corruption;
(c) the risks to ECGD, the Applicant and
their respective employees as a result of corruption;
(d) the business case for effective anti-corruption
measures;
(e) the concealment of corruption through
agents, joint venture parties and sub-contractors;
(f) the reason for anti-corruption procedures;
and
(g) what is required for effective anti-corruption
procedures.
TI(UK) then examines some of the major defects
in the November Procedures.
5. Effective and workable anti-corruption
procedures are in the interests of everyone concerned, including
overseas project owners, host countries, the UK Government, ECGD,
ECGD's customers and the tax paying public. The November Procedures
are materially ineffective. TI(UK) will be pleased to work with
all relevant parties to develop appropriate and effective procedures.
THE COMMITMENT
OF THE
UK GOVERNMENT AND
ECGD TO COMBAT
CORRUPTION
6. The UK Government is committed to implementing
effective anti-corruption policies. It is a signatory to the following
Conventions, all of which impose various degrees of anti-corruption
obligations:
(a) The United Nations Convention against
Corruption.
(b) The OECD Convention on Combating Bribery
of Foreign Public Officials in International Business Transactions.
(c) The Council of Europe Criminal Law Convention
on Corruption.
(d) The EU Convention on the Protection of
the European Communities' Financial Interests (PIF-Convention),
and its first and second protocols.
(e) The EU Convention on the Fight against
Corruption involving Officials of the European Communities or
Officials of the EU Member States.
These conventions vary in scope and effect.
However, they all share common components in that they require
signatories to take necessary steps to prohibit and to prosecute
bribery.
7. The most significant change that necessarily
affects the Government's commitment to combat foreign bribery
is the enactment of Part 12 of the Anti-terrorism, Crime and Security
Act 2001, which came into force on 14 February 2002. This criminalises
foreign bribery even where all components of an offence take place
abroad, and makes it an offence in the UK for any UK national
or UK registered company to bribe overseas, whether in the public
or private sector and regardless of the size or value of the bribe.
Whatever may have been the view previously, it is now totally
unacceptable for any UK national or company to contemplate winning
business by bribing, still less for any government department
to encourage, condone or ignore the practice.
8. Since the change in the law, UK Trade
& Investment, in association with the Home Office and the
Department of Trade and Industry (DTI), draws attention to the
criminal offence of overseas bribery in its publications. Its
leaflet states that:
"Bribery is bad for business. A culture
of corruption is a disincentive to trade and investment and payment
of bribes is unacceptable behaviour for UK companies or nationals.
By upholding the law and promoting transparency in business activities,
British companies enhance their own reputations and staff morale."
"Crown Servants and locally engaged employees
in British Diplomatic posts overseas who in the course of their
duties, become aware of, or receive information relating to acts
of bribery committed by UK nationals or legal persons are obliged
to report the matter, so that the appropriate UK authorities can
decide whether to pursue an investigation."
9. ECGD expressly states its intention to
prevent corruption in the following manner:
(a) In its letter to its customers dated
4 March 2004 (which informed customers of the introduction of
the May Procedures), ECGD stated that:
"The new provisions, details of which are
appended to this letter, are in the main being introduced to reflect
lessons learned by ECGD and to ensure that we continue to play
our part in the Government's drive to root out wrong doing in
international business transactions, whether exporting, providing
finance or investing. We believe that this will be to the ultimate
benefit of all UK companies."
(b) In the "Important Information"
section on the first page of the ECGD "Application for an
ECGD Buyer Credit Guarantee" (November 2004), it is stated
that:
"Please note that the OECD countries, including
the United Kingdom, are committed to combating corruption and
money laundering."
10. The following paragraphs were included
in the TI(UK) submission to the Trade and Industry Committee in
March 2004:
"ECGD Pivotal in Preventing the Export of
Bribery
5.1 By virtue of its function and the business
sectors that its operations support, the ECGD finds itself in
a pivotal position in affecting the incidence of corruption in
international business. ECGD approval of an application will,
rightly or wrongly, sometimes be perceived as assuring a measure
of propriety and "public" approval. ECGD is uniquely
well placed to detect and prevent corruption and positively to
influence corporate behaviour to reject bribery in the conduct
of foreign business. It is hoped that the new measures that the
ECGD has introduced to tackle corruption will advance considerably
on existing practice and will make a positive contribution to
ECGD's business.
5.2 The ECGD, through the OECD Group, seeks
parity of practice with other ECAs, hoping thereby not to be at
a competitive disadvantage with them. In the rapidly changing
legal and business environments, it is not at all clear that a
softer regime is a competitive advantage, save in the very short
term. Business lost by virtue of maintaining lower anti-corruption
hurdles is business that the ECGD would be better off without."
THE CASE
AGAINST CORRUPTION
11. Corruption can no longer be regarded
as an inevitable and necessary part of business life. The damage
to developing countries caused by corruption is now obvious, with
under-development, poverty and starvation the inevitable consequences.
The World Bank estimates the cost of corruption at US $1.5 trillion
per annum. This sum could dramatically reduce world poverty if
it was not misappropriated. In particular, corruption can disadvantage
the developing world by resulting in projects or products which
are unnecessary, unsuitable, defective or dangerous; which require
overly complex components; which are over-priced or expensive
to operate and maintain; or which are delayed.
12. Corruption results in the misuse of
a company's capital, which is invested for corporate purposes.
If it is known within a company that it's foreign subsidiaries
or joint ventures routinely win business by paying bribes, the
corporate culture of that company is tarnished. Corruption distorts
markets and is therefore the enemy of fair competition. The ease
with which the proceeds of corruption can be laundered fuels extortion,
and has the potential to damage banking reputation and financial
markets. Corruption is bad for society, bad for the economy and
bad for the companies involved.
13. ECGD guarantees are ultimately underwritten
by the UK taxpayer. ECGD guarantees should not support projects
that are procured through bribes. It is wrong that the UK taxpayer
should be used unwittingly to subsidise and facilitate corruption
which is having such a damaging effect on the developing world.
14. The responsibility to eliminate corruption
is shared between the developed and developing world. Steps must
be taken on both the supply and demand sides. Both ECGD and Applicant
companies have an obligation to play their part in the reduction
of the supply side of corruption.
THE RISKS
TO ECGD, THE
APPLICANT AND
THEIR RESPECTIVE
EMPLOYEES AS
A RESULT
OF CORRUPTION
15. For the reasons summarised below, corruption
imposes a clear business and criminal risk on ECGD, Applicants
and their respective employees.
The risk to ECGD and its employees as a result
of corruption
16. Corruption can result in dangerous or
environmentally destructive projects. This could involve ECGD
in losses and litigation if it could be shown that the presence
of ECGD's guarantee enabled the project to proceed, or that ECGD
took inadequate steps to prevent corruption.
17. Corruption can increase the capital,
operating and maintenance costs of projects, or result in unnecessary,
wrongly specified, or defective projects. Any of these factors
can make the project uneconomic. The project owner could as a
result fail to repay the banks which are financing the project.
The banks could then make a claim on ECGD under the guarantee,
and ECGD could fail to recover under its recourse arrangements.
18. A contract which has been procured by
an illegal act (which would normally include a bribe) is in many
jurisdictions either invalid from commencement, or can be terminated
by the aggrieved party, who would then be entitled to claim damages.
If a project contract were to be terminated as a result of the
Applicant paying a bribe, the Applicant and/or the project may
collapse financially, leading to possible claims against ECGD,
with the consequent drain on ECGD's resources, management time
and reputation. Although ECGD may have the theoretical right of
recourse against the Applicant, this will prove valueless if the
Applicant has collapsed. Attempts by ECGD to recover the funds
from the recipient of the bribe are unlikely to be successful.
19. The cost of bribes is frequently hidden
in the project cost. If there is a claim against ECGD, and ECGD
is unaware of the bribery, the cost of the bribe may inflate the
amount ECGD is compelled to pay under a guarantee. ECGD will therefore
be paying for the bribe.
20. Participation in a corrupt project will
inevitably involve ECGD in reputational risk.
21. There is possible criminal liability
for ECGD and its employees. The extent of corrupt practices in
relation to projects in some countries is so widely known that
ECGD is on notice of this situation. Some projects would not go
ahead were it not for the presence of all necessary constituents,
including a bribe, international finance and export credit guarantees.
Failure to undertake adequate anti-corruption measures could therefore
expose ECGD and its employees to the accusation that they were
aiding and abetting bribery.
22. The above risks do not result only from
a corrupt act by the Applicant. The Applicant is in many circumstances
liable for the corrupt acts of its agents, associated and subsidiary
companies, joint venture and consortium partners, sub-contractors
and suppliers. Therefore, acts by these parties can also impact
on ECGD's liability.
The risk to the Applicant and its employees as
a result of corruption
23. Corruption increases costs and risk
for exporting companies. It can result in wasted tender expenses,
tendering uncertainty, increased project costs, economic damage,
blackmail, criminal prosecutions, fines, blacklisting, and reputational
risk. Companies which should win business may be denied the opportunity
by the corrupt acts of competitors.
24. For individual directors and managers,
corruption can result in criminal prosecution, fines, imprisonment,
loss of professional status, disqualification from office, and
loss of employment.
THE BUSINESS
CASE FOR
EFFECTIVE ANTI
CORRUPTION MEASURES
25. It follows from the serious risks outlined
above that there is a strong case for a company to take every
reasonable precaution to avoid winning business by bribing. It
is no longer an option for a responsible director or manager to
countenance the practice. Reputation risk that is not properly
managed can lead to the collapse of major enterprises. Reputation
is a company's single most valuable asset. Several recent corporate
scandals have demonstrated the catastrophic effects of a lack
of integrity in board rooms. Given the criminalisation of foreign
bribery, carrying heavy prison sentences and fines, there is no
longer a valid argument that to be denied the opportunity to bribe
places a company at a competitive disadvantage. The fact that
there are international conventions should contribute to achieving
fair trading conditions, and criminalisation can operate as a
shield against extortion. UK embassies and high commissions abroad
are now urged by the FCO to report allegations of bribery by UK
companies and nationals and several reports have been sent to
the National Criminal Intelligence Service from that source and
from the ECGD.
26. Even before foreign bribery was criminalised,
many progressive companies had appreciated that in the medium
to longer term, a reputation for integrity in business dealings
would prove positive and lead to more sustainable and profitable
business. Some major companies have adopted zero tolerance of
bribery world wide. Following a regime change in a country where
extortion and bribery are commonplace, to be a company that has
developed a reputation for integrity in business dealings should
command competitive advantage. Companies looking to remain competitive
and to enhance shareholder value into the future, will see corrupt
business as a serious threat, and positive measures to combat
it as an opportunity.
THE CONCEALMENT
OF CORRUPTION
27. Corruption is normally concealed. The
payment of a bribe may be made direct to the recipient. However,
it is common for a bribe to be paid through intermediaries so
as to obscure its identity and purpose.
(a) Agents. The most common form of intermediary
is the agent. The Applicant may appoint an agent who has contacts
with a senior officer of the project owner or with an official
of the government of the country concerned. The Applicant may
pay the agent a percentage of the contract price on being awarded
the contract. The agent may pass the whole or part of the payment
to the officer of the owner or government official as a bribe
in return for the Applicant winning the contract. The officer
or official are not accepting the bribe on behalf of the owner
or government. They are accepting the payment secretly and unlawfully
for their own personal benefit. The payment is therefore concealed.
The payment is often made in foreign currency into an offshore
bank account. Applicants may attempt to give the bribe a veneer
of false legitimacy by signing a formal agreement with the agent
that purports to state that the agent is carrying out legitimate
services. The scope of work will often be false or exaggerated,
however, and the size of the payment significantly in excess of
the value of any legitimate services the agent carries out.
(b) Joint ventures and subsidiaries. The
level of due diligence by export credit agencies, banks and prosecution
authorities is lower in some countries than in others. When an
Applicant bids as part of an international joint venture from
several countries, the joint venture may arrange for the agency
agreement to be executed in, and the commission paid from, the
country least likely to investigate the commission. Similarly,
where an Applicant is part of a multinational group, the commission
may be paid by a subsidiary in a country where the commission
is less likely to be investigated. The subsidiary may then be
repaid by the Applicant through inter-company charges for false
services, or services of inflated value. These commissions may
then be used as bribes.
(c) Sub-contractors. An Applicant may also
channel a bribe through a disguised sub-contract arrangement.
For example, a sub-contractor might agree to provide equipment
and materials to a contractor in return for a certain payment,
but in reality it will not provide the services, or will provide
services of a vastly lower value than the price agreed. The balance
of the payment can then be passed on by the sub-contractor to
the relevant party as a bribe.
THE REASON
FOR ANTI-CORRUPTION
PROCEDURES
28. For the reasons stated in paragraphs
15 to 26 above, it is unquestionably in the best interests of
both ECGD and Applicants to adopt procedures which are effective
in reducing the risk of corruption.
29. For ECGD, effective anti-corruption
procedures reduce the risk that ECGD could suffer financial loss
or reputational damage, and that its employees could face criminal
prosecution for adding and abetting bribery. Moreover, it is entirely
normal for underwriters to require the insured to take necessary
steps to minimise risk.
30. For Applicants who wish to avoid bribery,
effective anti-corruption procedures by ECGD will reduce the risk
that competitors will continue to bribe while benefiting from
ECGD guarantees.
EFFECTIVE ANTI-CORRUPTION
PROCEDURES
31. Effective anti-corruption procedures
for export credit agencies require a mixture of actions. These
would include at a very minimum:
(a) warranties from the Applicant;
(b) pre-contract due diligence;
(c) post-contract inspection.
Warranties
32. It is necessary for ECGD to require
Applicants to provide appropriate anti-bribery warranties, both
in the Application and in the Premium and Recourse Agreement.
These warranties should extend to both the Applicant and to the
Applicant's business partners (such as subsidiary and associated
companies, agents, joint venture and consortium partners, sub-contractors
and suppliers). The acts of the Applicant's business partners
can result in liability for the Applicant, and therefore for ECGD.
The warranties should contain sufficient contractual commitment
from the Applicant so that it is clear that the Applicant appreciates
the risk, and will therefore undertake sufficient preventative
measures of its own. The exact wording of these warranties needs
to be agreed as part of the imminent consultation process between
ECGD, industry and civil society, with a view to ensuring that
the warranties are reasonable and effective.
33. However, warranties are not a complete
solution. Any Applicant which is willing to break the law by paying
or permitting a bribe is likely to be willing to give a false
or misleading declaration to this effect to ECGD. It is inconceivable
that an Applicant which proposes to pay a bribe would admit this
to ECGD in the Application. Therefore, warranties need to be supplemented
by other methods, such as due diligence and inspection.
Pre-contract due diligence
34. Pre-contract due diligence comprises
the necessary measures which should, as a matter of best practice,
be taken by all relevant parties prior to contracts being entered
into. The purpose of the due diligence is to ensure, as far as
reasonably possible, that there will be no corruption. There are
three categories of due diligence:
(a) The due diligence which ECGD should undertake
on the Applicant and the relevant project. ECGD needs to obtain
sufficient information from the Applicant so that ECGD can take
reasonable steps to assess the likelihood of corruption taking
place.
(b) The due diligence which the Applicant
should undertake on its business partners and the relevant project,
so as to be reasonably certain that no corruption will take place.
(c) The key aspects of the due diligence
undertaken by the Applicant under (b) above which the Applicant
should disclose to ECGD as part of ECGD's due diligence under
(a).
35. The extent of this due diligence needs
to be agreed as part of the imminent consultation process between
ECGD, industry and civil society,
Post-contract inspection
36. Post-contract inspection comprises the
necessary measures which should, as a matter of best practice,
be taken by ECGD after contracts have become effective. The purpose
of the inspection is to ensure, as far as reasonably possible,
that no corruption is taking place.
37. Post-contract inspection is necessary
as:
(a) Pre-contract due diligence may not in
practice have prevented or uncovered all potentially corrupt activities.
(b) Parties which had no intention of participating
in corrupt activities at pre-contract stage may participate in
corrupt activities at post-contract stage.
(c) Inspection acts as a deterrent. If the
Applicant and its business partners are aware at pre-contract
stage that ECGD may at any time at post-contract stage inspect
their records and interview their staff, the Applicant and its
business partners will be less likely to enter into corrupt transactions.
38. Inspection must be reasonable, cost-effective
and proportionate. Major projects may have a permanent inspection
regime. Smaller projects may have a part time or random inspection
regime. The extent of inspection needs to be agreed as part of
the imminent consultation process.
Prevention of corruption is the prime aim
39. Prevention of corruption is the prime
aim of effective anti-corruption procedures. If a bribe is discovered
after it has been paid, the damage will often be irreparable.
The project and participants may collapse, the recipient of the
bribe may vanish with the proceeds, and ECGD may be obliged to
indemnify the affected parties. It is therefore imperative that
ECGD takes more proactive steps to prevent bribery from occurring.
40. Bribery is concealed. The more successful
the bribe, the less likelihood of it ever being uncovered. It
is widely acknowledged that corruption is widespread in international
business, yet very few prosecutions are ever brought. ECGD may
therefore have provided guarantees, at taxpayers' risk, for a
corrupt project. There must therefore be a transparent environment
in which corruption is too risky to perpetrate.
41. Anti-corruption warranties, due diligence
procedures and inspection mechanisms need to be adequate to prevent
as far as possible not only the payment of bribes by the Applicant,
but the payment of bribes by the Applicant's agents, associated
and subsidiary companies, joint venture and consortium partners,
sub-contractors and suppliers. The corrupt acts of these parties
can impose liability on the Applicant, and endanger the economics
of the project, which can in turn adversely impact on ECGD.
42. Recognition also needs to be given to
the fact that anti-corruption procedures must be reasonable and
proportionate. A large high risk project should require a higher
level of disclosure, due diligence and inspection than a small
or low risk project. Business should not be unduly burdened by
anti-corruption procedures. Yet, at the same time, business should
realize that the changed anti-corruption environment brought about
by the new international intolerance to corruption and anti-corruption
treaties requires a more open and honest method of undertaking
business. Alleged "commercial confidentiality" and similar
justifications should not be allowed to conceal corrupt practices.
ANALYSIS OF
THE EFFECTIVENESS
OF THE
NOVEMBER PROCEDURES
43. In preparing this analysis, TI(UK) is
not commenting on the detail of the November Procedures, but only
on some of the major points of concern. The purpose of these comments
is to illustrate that the November Procedures are materially defective
in their professed purpose to prevent corruption. TI(UK)'s detailed
proposals on effective anti-corruption procedures will be submitted
as part of the imminent public consultation process. For the sake
of simplicity, TI(UK) has commented only on the "Application
for an ECGD Buyer Credit Guarantee" and on the "Premium
and Recourse Agreement" for the Buyer Credit Guarantee. According
to ECGD's web-site, the bulk of ECGD's business involves buyer
credits.
44. A Buyer Credit functions in the following
manner. A project owner may request tenders from exporters. The
owner may not have sufficient funds to pay the exporter, and may
therefore request the exporter to provide an offer both to supply
the product, and to finance its purchase. The exporter will gain
the agreement of an international bank to provide a loan of 85%
of the cost of the product. The balance of 15% will normally be
directly payable by the owner to the exporter. If the exporter
is successful in winning the tender, the bank will pay the exporter
for the supply at agreed intervals, and the project owner will
then repay the bank the capital and interest over an agreed loan
term. ECGD provides a guarantee to the bank that ECGD will repay
the bank in the event of specified events of default by the project
owner. In return for this guarantee, the exporter pays ECGD a
premium. Prior to tendering, the exporter obtains a commitment
from ECGD by completing the "Application for the Buyer Credit".
If the exporter is successful in winning the contract, ECGD enters
into a loan guarantee commitment with the bank, and a "Premium
and Recourse Agreement" with the exporter. For some projects,
political and similar risk may be covered by recourse arrangements
between ECGD and the governments of the host countries.
45. In terms of corruption prevention, the
key document is the Application, as it is submitted to ECGD prior
to contractual commitment.
APPLICATION FOR
AN ECGD BUYER
CREDIT GUARANTEE
46. The following comments apply to the
"Application for an ECGD Buyer Credit Guarantee". The
Procedures being compared are the "May Procedures" issued
by ECGD in May 2004, and the significantly weakened "November
Procedures" issued by ECGD in November 2004.
The November Procedures do not require disclosure
of agents' commissions if they are 5% or less of the contract
price and are not subject to the export credit
47. Under Paragraph 7 of the Schedule to
the Application in the May Procedures, ECGD required the Applicant
to give disclosure of specified details in relation to any agent
involved by the Applicant or any Affiliate in relation to the
Supply Contract. There was no percentage or financial limit to
the disclosure.
48. Under Paragraph 7 of the Schedule to
the Application in the November Procedures, the Applicant is no
longer required to provide any details of an agent where the agent's
commission is 5% or less of the contract price and where it is
not to be covered in any way by ECGD support.
49. This amendment leaves a significant
gap in ECGD's anti-corruption procedures. As explained in paragraph
27 above, the use of agents through which bribes are channelled
is a relatively common mechanism in international business. Payment
of a commission of 5% (which could then be used as a bribe) would
not be unusual in many jurisdictions. These commissions could
deliberately be paid by the Applicant out of funds which do not
fall within the scope of the ECGD support, and as such would not
need to be declared to ECGD. For example, they could be paid out
of the cash down payment, or out of a separate fund set up by
the Applicant to pay commissions. 5% of the price of a large contract
can be a significant amount of money. A commission of higher than
5% could also be free from disclosure if the Applicant divides
the commission into separate elements each of less than 5%. As
many agents are shell companies based in haven jurisdictions,
it would be easy to appoint several agents, and to divide the
commission between them.
50. The reason why details should be provided
by Applicants to ECGD in relation to agents is that the use of
agents is such a common mechanism for paying bribes. Disclosure
to ECGD of the identity of the agent, the amount of the commission,
the country in which the commission will be paid, the agent's
scope of work and related details alerts ECGD to the existence
of the agent, and could highlight potentially suspicious circumstances
(eg payment of the agent's commission into an offshore bank account,
payment of an unusually large amount, or a potential connection
between the agent and an official or Government minister involved
in the tender process). Disclosure to ECGD also puts both the
Applicant and the agent on notice that ECGD may undertake subsequent
due diligence on the agent to ascertain whether it was in fact
carrying out the services in question. This has an important preventative
effect.
51. The following hypothetical examples
show obvious situations where ECGD's procedures would not be effective
in this regard.
52. Example 1:
The Applicant appoints an agent in relation
to a tender for a £100 million power station. The agent is
the sister of the President of the country in which the power
station will be built. The commission will be 5% (£5 million)
payable into a "haven" jurisdiction. The commission
is paid out of a separate fund which the company maintains to
pay commissions. The commission therefore does not fall within
the ECGD support. The Applicant wins the project, and pays the
commission. The sister of the president provides only minimal
legitimate services. The payment is a bribe which she shares with
the President. Under the May Procedures, the Applicant would have
had to notify ECGD of the name and address of the agent, details
of the services to be provided by the agent, the amount of the
commission, and the country where the commission was payable.
Under the November Procedures, the Applicant has no obligation
to declare the existence of the agent, or the commission, or any
related information to ECGD, as the commission is not more than
5%, and does not fall within the export credit. Whether or not
the commission is included in the credit, the contracts on which
the project relies are voidable as a result of the bribe and may
collapse prejudicing the entire project with potentially huge
economic consequences.
53. Example 2:
The facts are as in Example 1, except that the
commission is 20% (£20 million). So as to avoid ECGD's disclosure
obligations under the November Procedures, the President's sister
sets up four separate shell companies in a "haven" jurisdiction.
Each shell company signs a separate agency agreement with the
Applicant. Commission of 5% (£5 million) is paid to each
agent. Although the aggregate commission is in excess of 5%, the
November Procedures only require disclosure if the commission
exceeds 5% per agent. This arrangement would have needed to be
disclosed under the May Procedures. It does not need to be disclosed
under the November Procedures.
54. Disclosure of this information to ECGD
will not be difficult for the Applicant. An Applicant faces significant
risks if an agent pays a bribe on its behalf. An Applicant would
normally be liable under the contract with the project owner for
the acts of its agent. A contract is often either void, or can
be terminated, in the event that a bribe has been paid in relation
to the contract award. Therefore, if the Applicant's agent pays
a bribe to a senior officer of the project owner, and the project
owner terminates the contract as a result of the bribe, and/or
claims damages, then the Applicant may be liable to the project
owner and other parties for the consequences, even if the Applicant
had no knowledge of the bribe. Therefore, it is a commercial imperative
for a company that it conducts proper due diligence on its agent,
and takes necessary preventative steps, so as to try to avoid
this type of liability.
55. The need for due diligence on agents
has also been acknowledged as international good practice by many
leading international companies. TI in 2002 published its "Business
Principles for Countering Bribery". These principles were
developed as a benchmark for international good practice in conjunction
with many leading international companies such as General Electric,
Norsk Hydro, Pricewaterhouse Coopers, Rio Tinto and Shell. The
Business Principles require the enterprise to prohibit bribery
in any form, whether direct or indirect, and to implement a programme
to counter bribery. Paragraph 6.2.2 of the Business Principles
states as follows:
"6.2.2.1 The enterprise should not channel
improper payments through an agent.
6.2.2.2 The enterprise should undertake due
diligence before appointing an agent.
6.2.2.3 Compensation paid to agents should
be appropriate and justifiable remuneration for legitimate services
rendered.
6.2.2.4 The relationship should be documented.
6.2.2.5 The agent should contractually agree
to comply with the enterprise's Programme.
6.2.2.6 The enterprise should monitor the
conduct of its agents and should have a right of termination in
the event that they pay bribes."
56. The ICC Rules of Conduct to Combat Extortion
and Bribery, produced by business for business, include the following
provisions in respect of agents:
"Enterprises should take measures reasonably
within their power to ensure
(a) that any payment made to any agent represents
no more than an appropriate remuneration for legitimate services
rendered by such agent;
(b) that no part of any such payment is passed
on by the agent as a bribe or otherwise in contravention of these
Rules of Conduct; and
(c) that they maintain a record of the names
and terms of employment of all agents who are retained by them
in connection with transactions with public bodies or State enterprises.
This record should be available for inspection by auditors and,
upon specific request, by appropriate duly authorised governmental
authorities under conditions of confidentiality."
57. Therefore, a well run company will have
access to full details of its agents, and can easily pass these
details to ECGD. The ICC Rules specifically recommend that these
details are passed on to governmental authorities. A 5% cut-off
makes no sense as there could be an enormous disparity depending
on the contract price. 5% of £100 is £5. 5% of £100
million is £5 million. Furthermore, a bribe does not cease
to become a bribe merely because it is 5% or less of the contract
price. The bribery risk remains, whatever the amount in question.
58. The May Procedures provided for disclosure
in relation to agents without any monetary limit. The November
Procedures provide for the above 5% exception. As such, the November
Procedures are materially defective.
The November Procedures allow the Applicant not
to disclose the name and address of the agent
59. Under Paragraph 7.3 of the Schedule
to the Application in the November Procedures, ECGD requires the
Applicant to provide details of the name and address of the agent.
This is critical information, as it may highlight a possibly suspicious
circumstance (for example a connection between the agent and a
representative of the project owner or government of the country
in which the project will be located, or the fact that the agent
is located in a "haven" jurisdiction). However, ECGD
expressly provides in this paragraph that "If you are unable
to provide this information, please give your reason(s) for not
being able to do so."
60. The May Procedures allowed no such concession.
61. As it is inconceivable that the Applicant
would not know the name and address of an agent it was appointing,
it seems that ECGD is providing the opportunity for Applicants
not to disclose this information. Correspondence in relation to
the November Procedures between ECGD and some industry groups
recently published on ECGD's website suggests that this exemption
may be to allow non-disclosure in the event of "commercial
confidentiality". There can be no reason for any such exemption.
Corruption is concealed. Agents have commonly been one of the
most common routes through which bribes are paid. The whole purpose
behind disclosure of an agent's details is to make it more difficult
to use agents as a conduit for a bribe. Commercial confidentiality
cannot be used as a justification for non-disclosure to ECGD.
62. Many agents and intermediaries are companies
or individuals of the highest integrity, and provide legitimate
business services for fair remuneration. If they are reputable,
there is no reason why these agents should not be willing to be
open and transparent in their business dealings, and be willing
to have details of their identities, scope of work and commission
payments made available to ECGD as part of the due diligence procedures.
They should have nothing to hide. Agents would be likely to wish
their experience and expertise to be widely known so that they
attract more business. There should always be extreme concern
in relation to projects where the Applicant attempts to conceal
these details from ECGD. Suspicion must be present that the details
of these agents are being kept confidential because of their close
links to someone who has influence over the contract award or
contract management process. Therefore, if an Applicant refused
to disclose these details to ECGD, and ECGD allowed such non-disclosure
and proceeded to support the project, ECGD and its officers may
be criminally liable for aiding and abetting bribery (on the basis
that they were willfully blind) if the agency arrangements turned
out to have concealed a bribe.
63. Therefore, in all cases, details of
the agency arrangement should be disclosed to ECGD. There may
be exceptional circumstances where extra care needs to be taken
by ECGD to ensure that ECGD keeps these details confidential under
secure arrangements that would equate, for example, with Inland
Revenue practice.
64. As such, the November Procedures are
materially defective.
The November Procedures do not require disclosure
of agents' commissions if they are paid by or through joint venture
and other business partners
65. Under Paragraph 7 of the Schedule to
the Application in the May Procedures, ECGD required the Applicant
to give disclosure of specified details in relation to any agent
appointed by its Affiliates in relation to the Supply Contract.
An "Affiliate" included "in relation to (the Applicant),
any company which is a member of the same group of companies or
any other party to any joint venture or consortium or other similar
arrangement with (the Applicant) in connection with the Supply
Contract" (paragraph 4.1 of the Application).
66. Under Paragraph 7 of the Schedule to
the Application in the November Procedures, the Applicant is no
longer required to provide any details of an agent appointed by
a joint venture or consortium partner, or under any similar arrangement.
The Applicant's obligation is now limited to providing specified
details of agents "engaged by (the Applicant) or any Controlled
Company". A Controlled Company is one which the Applicant
controls by virtue of any contractual arrangements or through
owning a majority of the voting rights (paragraphs 4.4 and 4.5
of the Application). It would be unusual for the Applicant to
control its joint venture or consortium partners.
67. This amendment leaves a significant
gap in ECGD's anti-corruption procedures. Joint venture, consortium
or other business partners, which may be resident in countries
where bribes are less likely to be uncovered, may appoint the
agents and pay the commissions. These commissions may be used
as bribes. Bribes paid by joint venture and other partners place
both ECGD and the Applicant seriously at risk. The Applicant is
normally jointly and severally liable to the project owner for
the acts of its joint venture and other partners. Illegal acts
such as bribery normally entitle the project owner to terminate
the contract. Termination as a result of a bribe paid by joint
venture and other partners could leave both ECGD and the Applicant
exposed to losses, litigation and reputational risk.
68. Example 3:
The Applicant forms part of an international
joint venture in relation to a tender for a £500 million
petrochemical plant. One of the joint venture partners is located
outside the UK. It has good contacts with the chief executive
of the national oil company which will be the owner of the petrochemical
plant. The chief executive has requested, via an agent, a bribe
of 15% (£75 million) of the contract price in return for
ensuring that the joint venture is awarded the project. The joint
venture partner located outside the UK agrees to pay the bribe
through the agent, and includes part of the cost of the bribe
into its part of the project price. The balance of the cost of
the bribe is contributed to by each partner in the joint venture
paying a "leadership fee" to the joint venture partner
which is paying the bribe. The bribe is concealed as a "commission"
payable to the agent. No disclosure of this arrangement needs
to be made by the Applicant to ECGD under the November Procedures.
The contract is awarded to the joint venture and the bribe is
paid. A change of government in the country where the project
is located leads to an anti-corruption investigation of the project.
The bribe is revealed and the contract terminated, leading to
massive losses falling on the project participants. Claims are
made on ECGD. ECGD has to compensate the banks under the guarantee
(although it may be able to argue contributory negligence or default
by the banks in themselves failing to undertake adequate anti-corruption
due diligence). ECGD also faces litigation costs and reputational
risk. The country in which the project is located commences criminal
proceedings against the joint venture partners, ECGD and the relevant
individual employees of the joint venture parties and ECGD. The
criminal cause of action against the joint venture partner which
paid the bribe is that it paid the bribe either intentionally,
or with willful blindness to the possibility that the commission
could be used as a bribe. The criminal cause of action against
the Applicant and ECGD, and their employees, is that they aided
and abetted the bribery in that, despite being aware of the high
risk of bribery, they deliberately or with willful blindness required
no disclosure from the joint venture partner of the identity of
the agent, the amount paid to the agent, and its scope of work
(which may have alerted them to the bribery).
69. Any Applicant which is genuinely concerned
about protecting its position in relation to payments of bribes
by its joint venture and other partners would, as a matter of
course, require disclosure from these partners of details of agents
appointed in relation to the project in question. It should therefore
be very simple for the Applicant to pass this information on to
ECGD. It is important that ECGD receives this information as part
of its pre-financing due diligence.
70. The May Procedures provided for full
disclosure in this regard. The November Procedures eliminate the
need for such disclosure. As such, the November Procedures are
materially defective.
The November Procedures do not require the Applicant
to carry out due diligence on its joint venture or other business
partners
71. In the May Procedures, the definition
of "Affiliate" in paragraph 4.1 included "(the
Applicant), any company which is a member of the same group of
companies or any other party to any joint venture or consortium
or other similar arrangement with (the Applicant) in connection
with the Supply Contract". Paragraph 8.2.1 of the May Procedures
made it a condition of the guarantee that the Applicant certified
that "neither we nor to the best of our knowledge and belief
any of our Affiliates nor anyone (including any of our or their
employees) acting on our or their behalf with due authority or
with our or their prior consent or subsequent acquiescence has
engaged or will engage in any Corrupt Activity in connection with
the Supply Contract or any related agreement, undertaking, consent,
authorization or arrangement of any kind." Consequently,
as a result of these provisions, the Applicant would need to undertake
due diligence on its Affiliates so as to be reasonably sure that
they would not engage in corrupt activities.
72. However, in paragraph 9.2 of the November
Procedures, ECGD has removed most of the Applicant's obligations
in relation to joint venture, consortium and similar partners.
It has done this in the following ways:
(a) The anti-bribery undertaking in paragraph
9.2.1 now only applies to the Applicant and a Controlled Company
(any company which the Applicant controls by virtue of any contractual
arrangements or through owning a majority of the voting rights
(paragraphs 4.4 and 4.5 of the Application). The obligation under
the May Procedures to give this undertaking in relation to any
joint venture, consortium or other partner has therefore been
removed.
(b) A significantly reduced obligation in
relation to joint venture and other partners has been substituted
for the previous more extended obligation. A new definition of
"Associate" has been introduced which means "a
party to any joint venture, consortium or other similar arrangement"
(paragraph 4.1). Paragraph 9.2.2 provides that the Applicant is
obliged to notify ECGD in relation to a Corrupt Activity by an
Associate if the Applicant "becomes aware" of such activity.
In other words, the Applicant has no obligation to take any active
steps to ascertain whether such activity is being carried out,
or to try to prevent it.
73. If a company genuinely wishes to ensure
that joint venture, consortium and other partners do not pay a
bribe in relation to the project, then proper due diligence on
these parties would be a commercial necessity. The partners in
a joint venture are normally jointly and severally liable under
the contract with the project owner. A contract is often either
void, or can be terminated, in the event that a bribe has been
paid in relation to the contract award. Therefore, if a joint
venture partner pays a bribe to a representative of the project
owner (either directly or through an agent), and the project owner
terminates the contract as a result of the bribe, and/or claims
damages, then all the joint venture partners may be liable to
the project owner and other affected parties for the consequences,
even if they had no knowledge of the bribe. Therefore, it is a
commercial imperative for a company that it conducts proper due
diligence on joint venture, consortium and other partners so as
to try to avoid this type of liability. This commercial reality
was recognised by ECGD in its May Procedures.
74. The need for due diligence on such partners
has also been acknowledged as international good practice by many
leading international companies. Paragraph 6.2.1 of the "Business
Principles for Countering Bribery" referred to in paragraph
55 above states as follows:
"6.2.1.1 The enterprise should conduct
due diligence before entering into a joint venture.
6.2.1.2 The enterprise should ensure that
subsidiaries and joint ventures over which it maintains effective
control adopt its Programme. Where an enterprise does not have
effective control it should make known its Programme and use its
best efforts to monitor that the conduct of such subsidiaries
and joint ventures is consistent with the Business Principles."
75. The May Procedures provided for due
diligence by the Applicant, in that it required the Applicant
to give warranties to ECGD on behalf of it joint venture and other
partners. The November Procedures eliminate the need for such
due diligence. As such, the November Procedures are materially
defective.
The November Procedures do not require the Applicant
to give any effective anti-corruption warranty in relation to
its controlled companies
76. In the May Procedures, the definition
of "Affiliate" in paragraph 4.1 included, inter alia,
"a member of the same group of companies". Paragraph
8.2.1 of the May Procedures made it a condition of the guarantee
that the Applicant certified that "neither we nor to the
best of our knowledge and belief any of our Affiliates nor anyone
(including any of our or their employees) acting on our or their
behalf with due authority or with our or their prior consent or
subsequent acquiescence has engaged or will engage in any Corrupt
Activity in connection with the Supply Contract or any related
agreement, undertaking, consent, authorization or arrangement
of any kind." Consequently, as a result of these provisions,
the Applicant would need to undertake due diligence on its controlled
companies so as to be reasonably sure that they would not engage
in corrupt activities.
77. However, in paragraph 9.2 of the November
Procedures, ECGD has materially diminished the Applicant's obligations
in relation to its controlled companies. Under paragraph 9.2.1,
the Applicant is required to declare as follows:
"That neither we nor, to the best of our
knowledge and belief, any Controlled Company or anyone (including
any employees) acting on our, or that Controlled Company's, behalf
with due authority, or with our, or that Controlled Company's,
prior consent or subsequent acquiescence, shall have engaged,
or shall engage, in any Corrupt Activity in connection with the
Supply Contract."
This declaration is expressly qualified by the
wording "to the best of our knowledge and belief". The
declaration has been rendered entirely meaningless by the addition
in the Appendix to the November Procedures of a new definition
of "to the best of our knowledge and belief". Under
this definition, "knowledge" simply means "the
actual knowledge of the person concerned at the time of making
the statement". "The best of" simply requires "the
maker of the statement to review his or her then state of knowledge
and report all that that review tells him or her". Astoundingly,
the definition expressly states that it "does not require
the person to make any enquiries or in any other way to seek to
improve or augment his or her state of knowledge before making
the statement". Similarly, the definition of "belief"
is strictly limited. "There is no requirement to seek to
verify or bolster a belief by enquiry, other than by a diligent
search of the person's own conscience." The overall effect
of this undertaking is that the person providing the statement
simply puts down what is in his mind at the time of making the
statement, with no obligation to make any enquiries.
78. Therefore, even if a subsidiary company
of the Applicant were to pay a bribe, the Applicant would not
be liable in this regard to ECGD as long as the person signing
the Application on behalf of the Applicant did not actually know
of the intention to pay a bribe at the time he made the statement.
79. The effect of the revised definition
of "to the best of our knowledge and belief" is that
it will be in the interest of the Applicant to have the Application
signed by a representative who has as little knowledge as possible,
and who has never made any enquiries.
80. This revised definition is contrary
to commercial common sense and good practice, which would require
the Applicant to make constant enquiries of the true position,
and to exercise effective supervision over companies which it
controls. Paragraph 6.2.2 of the "Business Principles for
Countering Bribery" referred to in paragraph 55 above states
as follows:
"The enterprise should ensure that subsidiaries
and joint ventures over which it maintains effective control adopt
its (anti-corruption) Programme".
81. This revised definition is also significantly
weaker than the English criminal law test under which "wilful
blindness" is sufficient to result in criminal liability.
82. As such, the November Procedures are
materially defective.
The November Procedures do not require the Applicant
to make any enquiry as to whether it, or any companies it controls,
or any of its joint venture or other business partners, have been
debarred or convicted for corruption
83. In the May Procedures, the Applicant
is required to declare as follows:
"We declare that to the best of our knowledge
and belief neither we, or any of our Affiliates nor any of our
or their directors or employees:
5.1 appears on any list of contractors or
individuals debarred from tendering for or participating in any
project funded by the World Bank or any other multilateral or
bilateral aid agency, and
5.2 has at any time freely admitted or been
found by a court to have engaged in any Corrupt Activity."
84. However, the November Procedures have
materially weakened this obligation. In paragraph five of the
November Procedures, the Applicant is required to declare as follows:
"We declare that, to the best of our knowledge
and belief:
5.1 we or any Controlled Company or any board
director of ours or of any Controlled Company:
5.1.1 neither appears on any list of contractors
or individuals debarred from tendering for or participating in
any project funded by the World Bank or any other multilateral
or bilateral aid agency, nor
5.1.2 has at any time during the last five
years, other than under duress, admitted having engaged, or been
found by a court in any competent jurisdiction to have engaged,
in any Corrupt Activity that has not previously been notified
to ECGD."
85. As a result, there is no longer any
obligation on the Applicant to disclose to ECGD whether any or
its joint venture or other partners has been debarred or convicted
for corruption. This would be a necessary and obvious enquiry
for an Applicant to make on its joint venture and other partners
in undertaking its own anti-corruption due diligence. It would
therefore be easy for the Applicant to pass on this information
to ECGD. It is also imperative that ECGD is informed whether a
member of the Applicant's joint venture has been debarred or convicted
for corruption.
86. In addition, the remaining obligation
of the Applicant to make a declaration in respect of itself and
its controlled companies is expressly subject to the same virtually
meaningless definition of "to the best of our knowledge and
belief" referred to in paragraph 77 above. Therefore, as
long as the actual signatory did not know of any such debarment
or conviction, the Applicant would not be in breach of this undertaking,
even if the Applicant or a subsidiary or a director had been debarred
or convicted. The signatory would not even have to ask any colleagues,
or check any company records. It is impossible to comprehend why
an Applicant would be relieved by ECGD of an obligation to make
any enquiry as to whether itself or its own subsidiary company
or director had been debarred or convicted for corruption.
87. The November Procedures are therefore
materially defective.
The entire Schedule to the November Procedures
is expressly qualified by a new definition of "to the best
of our knowledge and belief" that is so weak that it materially
diminishes the effect of the disclosures in the Schedule
88. The introduction to the Schedule to
the November Procedures states that "All relevant questions
in this Schedule must be answered fully and truthfully to the
best of your knowledge and belief." As stated in paragraph
77 above, this expression has been re-defined with the result
that the information becomes virtually meaningless. The Schedule
contains vital underwriting details, and information on the Applicant's
agents. As the Applicant's signatory expressly does not have to
make any enquiry whatsoever while filling in this Schedule, no
error in the form will prejudice the Applicant as long as it was
correct as far as the signatory's actual knowledge and actual
belief was concerned. The signatory would merely have to swear
in court that that was all he knew, and what he believed, and
that would be the end of the matter. It would not be relevant
that all other senior managers of the Applicant knew, or would
have known, that the information provided by the Applicant was
wrong. No commercial organisation would ever permit a director
or employee to manage any part of the business expressly on the
basis that they need never make any enquiry as to what was occurring.
89. This qualification results in a virtually
meaningless and unenforceable Schedule, and leaves ECGD materially
exposed. The November Procedures are therefore materially defective.
PREMIUM AND
RECOURSE AGREEMENT
FOR THE
BUYER CREDIT
GUARANTEE
90. The following comments apply to the
"Premium and Recourse Agreement" for the Buyer Credit
Guarantee.
91. The key document in terms of corruption
prevention is the Application which could lead ECGD to decline
cover, or alert criminal authorities, before it was at risk, and
before the project commenced. The Premium and Recourse Agreement
is signed once ECGD has agreed to cover the Applicant, and the
project contract has been signed. The terms of the Premium and
Recourse Agreement are as a result very much an exercise in damage
limitation. Therefore, TI(UK)'s comments in this regard are limited
to two key observations.
The defects in the Application are perpetuated
in the Premium and Recourse Agreement
92. Many of the comments made above in relation
to the weaknesses in the Application apply also to the Premium
and Recourse Agreement, as the defects in the former document
are to a large extent perpetuated in the latter document. For
example, paragraph 5.11 of the Premium and Recourse Agreement
obliges the Applicant to indemnify ECGD, but this indemnity is
limited to the circumstances envisaged by paragraph 9.2 of the
Application (which excludes joint venture and other partners from
the terms of the non-corruption warranty, and only obliges the
Applicant to inform ECGD if "it becomes aware that any Associate
. . . has engaged in Corrupt Activity . . .".
ECGD has retained grossly inadequate post-contract
inspection powers
93. ECGD has not retained power to undertake
any effective post-contract inspection to ensure that no corruption
has taken, or could take place. Paragraph 5.9.2 of the Premium
and Recourse Agreement provides as follows:
"IF ECGD confirms in writing to the Supplier
that it has reasonable grounds for suspecting that an employee,
agent or intermediary of the Supplier has been engaged in any
Corrupt Activity . . . in connection with the Supply Contract,
(the Supplier shall) permit an independent third party acceptable
to the Supplier and ECGD to visit any of its UK premises where
records relating to the obtaining and performance of the Supply
Contract and the making of Disbursement Claims under the Loan
Agreement are kept during business hours for the sole purpose
of inspecting and auditing any records, other than those covered
by legal privilege, preserved in any medium or form including
records stored electronically which relate (a) specifically to
the Supplier's obtaining of the Supply Contract or the employment
of, and payments to or for the benefit of, any agents or other
intermediaries involved directly or indirectly at any time with
the Supply Contract and (b) only to the period up to the date
of award of the Supply Contract (the "Contract Records"
and, together with the Administration Records, the "Records"),
provided that ECGD may only inspect and audit Contract Records
for the sole purpose of verifying statements made, and information
given, to ECGD by the Supplier in the Application Form."
94. This wording contains the following
major deficiencies:
(a) ECGD can only exercise these powers if
it has reasonable grounds for suspecting a Corrupt Activity. Corruption
is concealed, and most successful bribes are never uncovered.
The power of ECGD to inspect is a powerful deterrent, and may
also uncover bribes in relation to which ECGD had no prior suspicion.
This power to inspect should not be limited only to the situation
where ECGD has reasonable grounds for suspicion.
(b) The independent third party needs to
be acceptable to the Applicant (Supplier). It is difficult to
see why this approval is necessary.
(c) The inspector can only visit the Applicant's
UK premises. However, the issue concerns exports and overseas
bribery. Records may be kept at the Applicant's overseas premises,
and the right to inspect should extend to these premises also.
(d) The inspector does not have access to
the records of associated and subsidiary companies, agents, joint
venture and consortium partners, or sub-contractors, even though
bribes may, with the knowledge or willful blindness of the Applicant,
have been arranged through these companies.
(e) Records can only be inspected if they
relate to the period up to the date of award of the Supply Contract.
However, most bribes will actually only be paid after award of
the Supply Contract (for example out of the contract down payment).
An inspection of pre-award documents would be unlikely to reveal
this. Inspection should not be limited to this period.
(f) Records can only be inspected for the
sole purpose of verifying statements made and information given
to ECGD by the Applicant in the Application. As is made clear
in paragraphs 46 to 89 above, the information requested in the
Application is seriously inadequate. The inspection will therefore
be equally inadequate. In addition, much of the information given
in the Application is expressly qualified by the "to the
best of our knowledge and belief" proviso, the power of which
has been neutered by the definition of this term in the Application
(see paragraph 77 above). As a result, the inspector may in practice
be confined to interviewing the signatory of the Applicant as
to his state of mind at the time he signed the Application. This
would be a worthless exercise.
95. These inspection powers are grossly
inadequate, and put ECGD materially at risk. The November Procedures
are therefore materially defective.
February 2005
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