APPENDIX 18
Memorandum by Transparency International
(UK)
TRANSPARENCY INTERNATIONAL
(UK)
1.1 Transparency International (TI) has
been at the forefront of the anti-corruption movement since it
was formed in 1993. TI is a not-for-profit, independent, non-governmental
organisation, dedicated to increasing accountability of government
and private sector and to curbing both international and national
corruption. It seeks to work in a non-confrontational way with
governments, companies, development agencies, NGOs and international
organisations to build coalitions to combat corruption. TI has
made a number of written and oral submissions to the OECD Working
Party on Export Credits and Credit Guarantees (the OECD Group)
with a view to strengthening best practice in deterring and combating
bribery on officially supported export credits.
1.2 TI's international secretariat is based
in Berlin and there are more than 90 national chapters around
the world (www.transparency.org). TI(UK) is the national chapter
for the UK and was among the first to be formed, also in 1993.
TI(UK) has on a number of occasions met with staff of the ECGD
to clarify its practice in deterring and combating bribery relative
to the OECD Group's recommendations.
TI(UK)'S SUBMISSION
AND INTERNATIONAL
BUSINESS
2.1 TI(UK) approaches this submission from
the single issue standpoint of contributing to the reduction of
international bribery. In so doing, it will respond primarily
to the first issue listed in the Press Notice—the ECGD's
objectives and business principles. To some extent the submission
also relates to the promotion of sustainable development and the
ECGD's corporate governance.
2.2 TI(UK) focuses mainly on bribery in
international business but is in no sense anti-business. It has
always enjoyed support from major companies and professional firms
operating internationally. A significant number of leading UK
companies are corporate members of TI(UK). This linkage with UK
companies enables TI(UK) to keep abreast of the problems that
business encounters in the "front line" of foreign exports
and investment. TI has been instrumental in producing and promoting
"Business Principles for Countering Bribery" as a framework
for companies to formulate codes and policies for responding to
bribery and extortion.
2.3 TI(UK) is currently giving priority
to special projects addressing corruption in the construction
and engineering industry and the official arms trade. These sectors
were listed as those where the most flagrant corruption was seen
according to the TI Bribe Payers Index published in 2002. Papers
published by the construction and engineering industry project
offer a wealth of suggested actions to assist in the elimination
of corruption from affected transactions. Whilst the focus is
on that industry, much of the advice reads across and can apply
to business in other sectors.
PROGRESS SINCE
THE 2000 REVIEW
OF ECGD'S
MISSION AND
STATUS
3.1 The ECGD should be commended for the
considerable progress made in 2000 and subsequently. There is
now a set of Business Principles the first one of which ensures
the ECGD's taking into account the Government's international
policies on various issues. As this first Business Principle already
lists some key areas where this applies (sustainable development,
environment, human rights, good governance and trade) there is
a case for including an express mention of combating corruption.
This would reflect the government's increasing international commitments
in this area. Apart from the OECD 1997 Convention referred to
in the ECGD's policies under Business Integrity, the UK in December
2003 formally ratified the Council of Europe Criminal Law Convention
and signed the UN Convention against Corruption.
3.2 The objectives and policies through
which the Business Principles are applied have wording that commits
the ECGD to combating corrupt practices and to operating according
to standards of probity and propriety set out in the Civil Service
Code. This cross-reference to the Civil Service Code could perhaps
be made more effective in communicating the objective of combating
corruption, if in the context of business integrity, it spelt
out the key relevant points from paragraphs 5 and 8 of the Code.
3.3 The ECGD has endeavoured to meet recommendations
of the OECD Export Credits Group and it has devoted time and effort
to consulting with NGOs on issues of sustainable development and
business integrity. However, it is understood that new, presumably
strengthened, guidance on anti-corruption measures has now been
issued to ECGD's customers but TI(UK) has not been consulted as
to the content (see para 6.1 below).
3.4 There is an Export Guarantees Advisory
Council, one of the functions of which is to monitor the ECGD's
compliance with its Statement of Business Principles. The reports
of the Council's activities in the last two Annual Reviews do
not disclose whether interest has been taken in the objective
of combating corruption. The concentration appears to be upon
environmental and social issues.
CRITICAL CHANGES
SINCE THE
2000 REVIEW OF
ECGD'S MISSION
AND STATUS
4.1 One critical change in the business
environment in which the ECGD operates is that with effect from
14 February 2002, the bribery of foreign officials or businesses
by a UK company or national is a crime, even though no part of
the transaction takes place in the UK. This is the effect of Part
12 of the Anti-terrorism, Crime and Security Act 2001. A crime
is committed, whether the bribed party is in the public or private
sector and regardless of the size of the bribe. This seriously
increases the ECGD's risk exposure along with that of banks and
other project finance houses. Project contracts may have a number
of different governing laws, but the new law in the UK may result
in contracts being more readily voided for illegality in circumstances
that were formerly not seriously considered. Moreover, it was
the government's expressed intention that the proceeds of corruption
and the economic benefit that accrues to a company from foreign
bribery could be seized and forfeited under the Proceeds of Crime
Act 2002. The circumstances of each case will determine whether
an export credit agency would be liable on an indemnity where
underlying contracts are voided. This business risk needs to be
managed.
4.2 In the context of TI(UK)'s project on
corruption in the construction and engineering industry, it has
produced a report entitled "Corrupt Practices on Construction
Projects—The Business Risk to Banks, Export Credit Agencies
(ECAs), Auditors and Shareholders" (copy attached—this
and all other published papers in connection with this project
are available on www.transparency.org.uk). The Report proposes
actions to minimise risk to ECAs.
4.3 Quite apart from the criminalisation
of foreign bribery, the business climate is changing. Numerous
international conventions against bribery have been signed and
are currently being ratified and implemented. Spurred by massive
corporate scandals in the USA and Europe, corporate governance
requirements are being constantly tightened. This is in parallel
with increasing interest in ethical investment. Corporate reputation
is seen as the single most valuable asset that a company has in
terms of securing long term shareholder value. The Combined Code
requires listed companies in the UK to comply with the Turnbull
guidance. Internal controls have to be adequate to support a company's
effective and efficient operation and to enable it to respond
to significant business, operational, financial, compliance and
other risks. These risks include reputation and business probity
issues. Reputation can be damaged by allegations of bribery in
another country, by the conduct of a subsidiary, associated or
joint venture company.
4.4 The official publications of government
departments, for the first time, are now directed at letting business
know of the extra-territorial effect of Part 12 of the 2001 Act.
Trade Partners UK, who had for long been rather silent on the
issue, has, in association with the Home Office and the DTI, issued
leaflets and web-based information drawing attention to the criminal
offences for overseas bribery, with their severe penalties. It
unequivocally 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". It is vitally important for the future
of ECGD that it continues to take this issue seriously and minimises
its own exposure by proportionate measures. There also needs to
be a coherent policy across departments for tackling corruption.
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.
5.3 The next two sections suggest ways in which
ECGD anti-corruption practice can be further strengthened.
IMPROVED PRACTICE
OF ECGD IN
COUNTERING BRIBERY
6.1 Bribes are most frequently concealed within
and represented as commissions payable to or through agents. Applications
for ECGD support already contain requests for information that
could lead to a conscientious applicant's undertaking a measure
of due diligence to ensure that no bribe is payable in connection
with a supported transaction. There is also a non-bribery declaration.
However, the form of the no-bribery declaration should be significantly
strengthened, so as to improve its impact on applicants' behaviour
by alerting them to ECGD's concerns and to counter unreasonable
defences to recourse claims. The applicant should bear the responsibility
for failure of due diligence rather than ECGD. TI(UK) had hoped
to propose changes in consultation with the ECGD and last offered
to assist in this way in December 2003. In the event, it is understood
that the ECGD's revised anti-corruption practice has recently
been sent to ECGD's customers and that it will be sent to TI(UK)
next month as a definitive document. Given TI(UK)'s positive approach
and understanding of business concerns (see para 2.2 above), this
is a disappointingly closed response.
6.2 The practice of paying inflated agency
commissions is such a common way in which bribes can be passed
that it merits considerably enhanced due diligence. This would
minimise the risk of false declarations discussed in para 6.1
above. In the context of TI(UK)'s construction and engineering
sector project (see para 2.2 above), it has published a report
entitled "The Prevention of Bribery through Agency Commissions"
(copy attached). TI(UK) has sent this to the ECGD with an offer
to discuss its contents and to consider its applicability in combating
corruption from the perspective of the ECGD's services. Obviously
the same level of due diligence cannot be adopted on all applications.
The appropriate level should take account of the amount of cover
being sought and the amount of agency commission(s) being paid.
Due diligence by ECGD would therefore be applied on a tiered basis.
A limit of a given percentage of project cost or cover is an inappropriate
measure to determine a level of due diligence. What matters in
most cases is the actual amount payable relative to actual services
provided or to be provided by the agent.
DEBARMENT AND
SUSPENSION
7.1 There is wide recognition of the importance
of a public financing institution's being able to deny future
finance or support for further applications from a company found
to have bribed. Such debarment for a fixed and proportionate period,
to include parent and subsidiary companies, is a potentially powerful
sanction in the anti-corruption armoury. This is the practice
of the World Bank group of institutions and is recommended best
practice of the OECD Group. The ECGD claims that it is unable
to apply this practice on legal grounds. This is understood to
be based upon the general principle of administrative law that
the Secretary of State may not fetter his or her future discretion.
It is said that this precludes automatic debarment of a company
that has been convicted of corruption or has been debarred from
the services of another institution for these reasons and that
such a practice could be challenged by way of judicial review.
7.2 Although the principle of administrative
law is well understood, its consequence in this context is surprising.
It suggests that an export insurance function is required to operate
in a manner that is less prudent than would apply to a commercial
credit institution that would be free to decline future business
to limit its exposure to the consequences of an applicant's criminal
activities. It is suggested that the powers of the Secretary of
State in the Export and Investment Guarantees Act 1991 are so
widely expressed that "arrangements" could include a
procedure for debarment or suspension. If that is really not the
case, then the Committee could recommend that the legislation
be amended to enable ECGD to come into line with OECD best practice
in this respect.
CONCLUDING COMMENT
8.1 TI(UK) is grateful for the extension
of time in which to make this submission. It would be willing
to offer whatever further information or assistance might be found
helpful.
Graham Rodmell
Director of Corporate & Regulatory Affairs
Transparency International (UK)
19 March 2004
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