Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 140 - 154)

TUESDAY 20 APRIL 2004 (Morning)

TRANSPARENCY INTERNATIONAL (UK)

  Q140  Mr Hoyle: Once you put British business aside for tendering, because it is a bit like the argument you are using, if you have 30 miles per hour, we all have 30 miles per hour round Europe, but only one has speed cameras, it is not quite as effective as it should be. What I would like to know from you—you did not quite answer the question—is we operate a robust system. Fine. Nobody argues about that. But is the same robust system being endorsed by other countries in competing projects?

  Mr Cockcroft: Can I come in there? I think one needs to put this in the context of a whole process of reform of ECA arrangements being triggered by OECD. TI as an organisation has had an input into that during the last two years, and we are pretty confident that the other ECAs associated with major exporting countries within OECD will be putting in or are putting in already equally significant measures, so that the issue of competitive disadvantage, if it occurs in the next six months, will not be there in a year's time; and one may contrast that with the adequacy of our own anti-corruption legislation, which is, frankly, not very strong. Some of our competitor OECD countries have stronger legislation. So to some extent it has to be seen in a slightly wider context. I think one needs to position it very firmly in the framework of the general revision of ECA processes which we are confident is moving forward in a very substantive way.

  Q141  Mr Hoyle: So when do you expect everybody to be using due diligence in the way that we do?

  Mr Cockcroft: If one had to hazard a guess, I would say in two years' time.

  Q142  Mr Hoyle: So at the moment we are leading the way and the others are following?

  Mr Cockcroft: That is effectively so, yes. If one wants to look at this in a different context and look at the reasons why this is, as it were, the case, or why the progress is uneven, then we get into the areas of political persuasion where some countries, notably the US, are in a position to be much more politically persuasive than European countries, including this one.

  Q143  Mr Hoyle: So it would be fair to say we have all introduced 30-mile per hour speed limits but we are the only one operating speed cameras at the moment?

  Mr Rodmell: I do not think we can say that, no, because we do not know what all the other ECAs are doing, but, as Laurence says, it is really part of a process. ECGD is one of the last ECAs to have introduced the statement in their forms pointing out that this is a crime, and it will only come in on 1st May. Overall, due diligence aside, I know that you are most interested in that because that looks like the most threatening one, but in other areas, ECGD has been a little behind and it is now catching up with others. It is part of a process where they are all going forward. What I would suggest, though, is that one should not assume a competitive disadvantage, because the kind of business that ECGD will want to do is the kind of business that would merit this additional and more robust approach to due diligence.

  Q144  Mr Hoyle: Lastly, obviously you have not got the information to hand, but if you have any information that you could send the Committee about the state of the play of how other countries are operating at what stage—

  Mr Cockcroft: We would be glad to put in a memo on that.

  Q145  Mr Hoyle: Please.

  Mr Cockcroft: And we can judge whether the speed cameras are operating.

  Mr Stansbury: One point is that the assumption is that business will not welcome extra due diligence. I am not sure that is correct. Many contractors in Britain, consultants in Britain, have had to withdraw from various markets overseas because they are not willing to bribe. Therefore, their turnover has dropped. It has hit their profitability, but they have made the decision, "We are not going to bribe". But many of their competitors have not made that decision, so many companies, contractors and consultants in Britain continue to bribe, and this is being repeated in many countries around Europe. Therefore there is a perception, "We should be rewarded for ethical conduct". We would like to go back into those markets but we cannot until it is cleaned up. Therefore if ECGD's due diligence makes sure that the corrupt contractors cannot get export credit and that ethical contractors can, surely it is assisting you to get the business, not deterring you.

  Mr Hoyle: Unless you are not operating the speed camera.

  Q146  Chairman: Apart from the analogy about speed cameras, you could say there is also the dimension of volume, in the sense that in some countries it might be quite easy to introduce the most rigorous procedures because at the end of the day it does not matter because they do not have much trade. As one of the major trading nations, is it the case that because of the number of deals that are struck by British-led consortia the propensity to have corruption is that much greater, the opportunity is that much greater?

  Mr Cockcroft: One can, as it were, if I might say so, Chairman, exaggerate the force of that argument. Germany is the largest single exporter in the world. German procedures are being changed as we speak and German legislation introduced after the OECD Anti-bribery Convention has been rather more effective than ours; so I think one has to put this in the context of what countries are doing generally in the anti-corruption field. For example, it was said that our anti-corruption legislation was particularly tough because it banned facilitation payments, but that is equally true of the French legislation. So the traditional British argument that other people are not doing what we are doing and we are ahead of the game is extremely dubious in this area of anti-corruption measures.

  Chairman: That is very helpful. I wanted to get that point either on the record or denied, but you have given your opinion and we will take it up with others. That is very helpful.

  Q147  Judy Mallaber: Moving on from that, you advocate the proportionate use of legal powers to deny support for applications for assistance in parent and subsidiary companies which have been found to have been involved in the payment of bribes, and you say in your evidence that that is the practice of World Bank institutions and is recommended best practice of the OECD Group but that ECGD does not feel it has sufficient legal cover for such an action. Would you like to comment on the logic of the argument made by ECGD?

  Mr Rodmell: Yes. I have not seen the legal opinion which ECGD rely on, but they do kindly summarise it for me, and it is all based on a general principle of administrative law pursuant to which it is said: "The Secretary of State may not fetter his future discretion; he must in each case, evaluate all relevant facts before making decisions", and so on, and I would not for one moment quarrel with the general principle of administrative law. But if you take it ad absurdum, in a way, it stops you making a decision, because each decision to some extent fetters the discretion of your successor from making subsequent decisions. So, again, I am sure that ECGD has had the benefit of learned counsel's opinion and I do not pitch my opinion against his or hers, but, generally speaking, if one looks at the Act under which the ECGD operates, which is the Export and Investment Guarantees Act 1991, it is difficult to imagine an attempt that could be made to use wider wording in terms of powers. It says, "The Secretary of State may make arrangements under this section with a view to facilitating the export . . . The Secretary of State may make arrangements . . . with a view to facilitating performance of obligations created or arising, directly or indirectly", and he "can make arrangements . . . for the reduction or avoidance of losses arising in connection with any failure to perform such obligations." It is extremely wide wording. Under "financial management", which is, I think, where you start to think about risk management and so on, "The Secretary of State may make any arrangements which, in his opinion, are in the interests of the proper financial management of the ECGD portfolio, and, in pursuance of those arrangements, he may alter any arrangements he has already made and he can "make further arrangements in connection with arrangements so made". It is very wide wording. It seems curious to me that, as part of those arrangements, the Secretary of State could not, in fact, require a procedure for sanctions where it is found that an applicant has engaged in corrupt activity. That is basically what the World Bank has done, which is why I mentioned that example, and their criteria are not where corruption has been admitted or where there has been an actual conviction, it is simply where it has been found by the World Bank or by its sanctions committee that there has been fraud or corruption in the procurement of goods or services. They have a procedure which is all set out; it is ostensibly a very fair procedure allowing the person against whom corruption is alleged the opportunity of putting in written submissions and being heard with legal representation, because the sanction is a very powerful one. If you are blacklisted by the World Bank and all its affiliates, that is a very powerful sanction. Those companies in Lesotho who have been found guilty on appeal stand the risk now of being blacklisted. I do not know if they have been. Not yet, but it is coming up for consideration. What I am suggesting is that if learned counsel consulted by ECGD is right, and this principle of administrative law precludes it, it would be the simplest thing to legislate to correct that, because the ECGD should not be denied this very powerful tool in its own risk management.

  Q148  Judy Mallaber: Do you have that statement about the legal opinion, the summary from ECGD? Do you have that in writing?

  Mr Rodmell: Yes.

  Q149  Judy Mallaber: Would it be possible to have a copy of the statement?

  Mr Rodmell: I do not see any reason why not. If it has been given to me I am sure it can be given to the Committee. I am sure, if they wanted to, they could see the actual legal opinion, but this one I am very happy to provide.

  Q150  Judy Mallaber: Do you feel that would be a very powerful tool for ECGD?

  Mr Rodmell: Yes.

  Q151  Judy Mallaber: More powerful than what they are able to do at present?

  Mr Rodmell: Yes and it is seen as best practice; but I would say that if a recommendation went from this Committee that consideration be given to introducing this sanction, it should follow more the World Bank style than resting on actual convictions.

  Q152  Judy Mallaber: You also said it is recommended best practice of the OECD Group. Do you have any information about the legal powers used in other OECD countries?

  Mr Rodmell: Yes, and it is true to say, again, that a number of the other ECAs are not using this power, but it is their recommended best practice. The Export Credit Group of the OECD have something called an "action statement", the current one is from 2000, which actually says what they should all do. Beyond that they have some recommended best practices which get modified and are considered. I believe the Group is meeting this week and may well be looking at another action statement, or that may go to the next meeting. So it is a current issue. It is a process. As Laurence says, it is improving all the time.

  Q153  Judy Mallaber: Do you know of other countries that are currently operating that legal provision that you are suggesting we should operate here?

  Mr Rodmell: I do not know the actual countries, no. They are in the minority at the moment.

  Q154  Judy Mallaber: Thank you very much. If we could have copies of that advice that you had from ECGD I would be grateful.

  Mr Cockcroft: May I add two points to that. First of all, the process by which the World Bank reached a view that it would be prepared to exercise a power of debarment was gradual, and initially, as recently as 1997, the World Bank's position was that they would only debar companies that were found to have behaved corruptly by a court, a successful prosecution. At the 1998 AGM in Hong Kong, Wolfensohn announced that this would change and the World Bank would now debar companies on the basis of its own investigation. If I may slightly respond to the second part of your question: although I am well aware that it is not a wholly adequate answer, blacklisting within states in Germany is now quite standard practice. It was pioneered in Bavaria and a number of German states now operate a debarment system in relation particularly to public sector contracting.

  Judy Mallaber: Thank you very much.

  Chairman: Thank you very much, gentlemen. I think that is very helpful. It is only one aspect of what we are concerned with, but I think we have mined fairly deeply this morning in that area. We are grateful for the information you have given us and, if you can give us any more by way of written submission, we would be very happy to receive it. Thank you very much.





 
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