APPENDIX 5
Memorandum by Transparency International
(UK)
SUMMARY
1. The UK Export Credits Guarantee Department
("ECGD"), after a year long consultation, published
in March 2006 its revised anti-bribery and corruption procedures
(the "March 2006 procedures"). The March 2006 Procedures
replace ECGD's December 2004 Procedures, which in turn replaced
its May 2004 Procedures.
2. The House of Commons Select Committee
on Trade and Industry has set up an inquiry which has asked the
following two questions:
(a) "Do the procedures published on
16th March 2006 in the Government's "Final Response to the
Export Credits Guarantee Department's consultation on the changes
made to its anti-bribery and corruption procedures in December
2004 reduce as far as reasonably practical the risk of ECGD supporting
contracts tainted by corruption?"
(b) "Are the
proposals set out in the Final Response workable?"
3. This submission is made by Transparency
International (UK) in response to the Select Committee's questions.
4. The term "Supplier" is used
in this submission to mean the exporting company which is applying
for and/or receiving the benefit of an export credit guarantee
from ECGD.
5. TI(UK) believes that the March 2006 Procedures
do not "reduce as far as reasonably practical the risk of
ECGD supporting contracts tainted by corruption".
6. The March 2006 Procedures are fundamentally
flawed in three key areas, and ECGD is as a result at risk of
facilitating corruption:
(a) Recourse:
Recourse provisions specific to corruption prevent
ECGD from having recourse against the Supplier unless it can be
proved that the Supplier was complicit in the corruption. ECGD
must therefore bear the cost of corrupt acts of the Supplier's
employees, group companies, agents, joint venture partners, and
sub-contractors, unless the Supplier's complicity can be proved.
Such provisions increase the likelihood that ECGD will support
contracts tainted by corruption. Corrupt Suppliers have the comfort
that there will be no recourse against them so long as their complicity
in corruption can be concealed. Non-corrupt Suppliers have a reduced
incentive to endeavour to ensure that their business partners
do not engage in corruption, as they are aware that ECGD will
not have the right of recourse in the event of corruption by these
parties. The inability of ECGD to obtain recourse in these circumstances
means that ECGD is actually providing insurance against corruption
by these parties. As ECGD is a publicly funded body, the UK taxpayer
is unwittingly being obliged to underwrite corrupt acts. The inability
of ECGD to obtain recourse in these circumstances is contrary
to normal contractual principles, to the UK's treaty obligations,
and to the UK Government's and ECGD's express commitment to combat
corruption.
(b) Disclosure:
Defective disclosure provisions unnecessarily
restrict ECGD's ability to assess whether it is guaranteeing a
corrupt contract. Such provisions result in the following:
(i) The Supplier is required to disclose
only the identity of agents appointed by it, or on its behalf.
Therefore, agents appointed by group companies of the Supplier,
or by the Supplier's joint venture or consortium companies do
not need to be disclosed, even though it is well known that agents
appointed by such parties could pay bribes in relation to the
export contract. It would be possible for the Supplier to be complicit
in such appointments even if it could not be proved that the appointments
were made on the Supplier's behalf.
(ii) Exceptions on the grounds of confidentiality
allow a Supplier to require details of its agents to be revealed
only to a few select staff at ECGD. These restrictions will make
it difficult for ECGD to undertake proper due diligence on the
agent. There is no commercial or other justification for these
concessions. On the contrary, requests for such confidentiality
suggest that corruption may be involved. These concessions will
only serve to hamper the purpose of disclosure, which is to help
identify whether agents have been appointed for corrupt purposes.
(iii) The Supplier is required to disclose
to ECGD the identity of any Agent appointed by it in relation
to the Supply Contract and any Related Agreement. However, it
is only required to disclose to ECGD the amount of the commission
paid to the Agent in relation to the Supply Contract. Thus the
cost of a bribe may be concealed in a Related Agreement, and ECGD
would have no opportunity of detecting this.
(c) Inspection:
Defective inspection provisions unnecessarily
restrict ECGD's rights to inspect. The threat of inspection helps
prevent corruption. Actual inspection helps uncover corruption.
However, ECGD's inspection provisions are unduly restrictive in
that:
(i) The inspection rights are limited to
the Supplier's UK premises.
(ii) The inspector does not have access to
the records of the Supplier's parent, associated and subsidiary
companies, agents, joint venture and consortium partners, sub-contractors
or suppliers.
(iii) Records can only be inspected if they
relate to the period up to the date of award of the Supply Contract.
(iv) Records can be inspected only for the
sole purpose of verifying statements made and information given
to ECGD by the Supplier in the Application.
(v) Five business days' notice is required
for inspection.
7. TI(UK) analyses the above issues in more
detail below, and provides recommendations for the rectification
of these flaws. If ECGD rectifies these flaws in the manner recommended
by TI(UK) then, in TI(UK)'s opinion, the revised procedures would:
(a) "reduce as far as reasonably practical
the risk of ECGD supporting contracts tainted by corruption";
and
DETAILED ANALYSIS
Recourse
8. The recourse provisions in clauses 7.3
and 9 of the Premium and Recourse Agreement provide for the circumstances
in which ECGD may seek recourse against the Supplier to recover
amounts paid out by ECGD under the guarantee. Clause 7.3 specifies
the recourse provisions relevant to corruption. Clause 9 specifies
the recourse provisions in all other circumstances.
9. Under clause 9, ECGD has recourse against
the Supplier in circumstances relating to material Supplier default
under the supply contract (which would include default by the
Supplier's agents, sub-contractors, joint venture partners and
group companies). This right of recourse applies absolutely, therefore
including cases where the Supplier was not complicit in the default.
An example of such default for which the Supplier would be absolutely
liable is defective work by a sub-contractor of the Supplier.
In such a case, ECGD would have right of recourse against the
Supplier even where the Supplier was not complicit in, or had
no knowledge of or control over the defective work.
10. Under clause 7.3, without good reason,
and against the normal basis of liability otherwise followed in
the recourse provisions, ECGD has singled out corruption as the
one circumstance in which it would not impose absolute liability,
irrespective of fault or complicity, upon the Supplier. As a result,
ECGD has no right of recourse against the Supplier in respect
of a corrupt act unless it can be proved that the Supplier was
complicit in the corruption.
11. This point is best illustrated by an
example which shows how contractual liability is normally managed
under a contract, how an ECGD buyer credit works, and how corruption
in this case would impact on ECGD.
(a) Normal contractual liability:
Take a power station contract as an example.
The Supplier bids to a utility to build a power station overseas.
The Supplier sub-contracts parts of the works to other companies,
who in turn sub-sub contract smaller parts. The result is a complex
contractual chain, with hundreds, sometimes thousands of links.
The utility will insist that the Supplier assumes full liability
for the acts of all its sub-contractors, and of their sub-sub-contractors.
Therefore, if the power station is defective or late, the utility
will seek compensation from the Supplier. It will not matter to
the utility whether the Supplier itself, or one or more of the
sub-contractors was responsible for the defect or delay. The Supplier
will compensate the utility, and it will be up to the Supplier
to seek indemnity from the responsible sub-contractor. In some
cases, the Supplier may form part of a joint venture comprising
several companies. In this case the utility would require the
Supplier and each of its joint venture partners to be jointly
and severally liable to the utility for the acts of the other
partners. The utility would not need to allocate responsibility
between joint venture partners, and will not release the Supplier
from liability because the default was that of its joint venture
partner.
(b) ECGD Buyer Credit:
An ECGD buyer credit works as follows in relation
to the above example. The utility takes a loan from a bank to
finance the construction of the power station. As the works proceed,
the Supplier periodically obtains payment from the bank to cover
the cost of the works completed to date. These payments are made
by the bank under the loan arrangements with the utility. Once
the works are fully complete, the Supplier has been paid in full
by the bank, and the utility must repay to the bank capital and
interest over the life of the loan. The bank is insured against
non-payment by the utility by an export credit guarantee issued
by ECGD to the bank. The premium for this guarantee is paid by
the Supplier to ECGD. Under the guarantee, if the utility does
not pay the bank, ECGD will pay the bank, and will try to obtain
recourse from the utility. If the reason for non payment is due
to material defaults by the Supplier, then ECGD would not be able
to get recourse from the utility, and would instead obtain recourse
from the Supplier. For example, ECGD would obtain recourse from
the Supplier if non payment by the utility was due to delay, defective
work or other default by the Supplier (or any of its joint venture
partners or sub-contractors).
(c) Impact of bribery: How could bribery
impact on the above scenario?
The Supplier may win the power station contract
as a result of a bribe paid to a senior executive of the utility,
or to a minister or senior government official in the country
in which the power station is being built. The bribe could be
paid direct by the Supplier. Alternatively, it could be paid indirectly
through the Supplier's agent, group company, joint venture or
consortium partner or sub-contractor. The group company, joint
venture or consortium partner or sub-contractor could themselves
pay the bribe indirectly through an agent. In each of the above
scenarios, there are various possibilities as to the degree of
the Supplier's involvement and knowledge. The Supplier may have
approved the bribe. Alternatively, it may be aware that a bribe
is likely, but not have formally approved it (therefore effectively
turning a blind eye to it). At the other end of the scale, the
Supplier may have done all that is reasonably possible to prevent
a bribe being paid. There are a number of options open to the
utility in the event that it discovers that a bribe has been paid
in order to procure the contract. Even if the bribe has been paid
to the chief executive of the utility, this will be an illegal
act by the chief executive which will not normally be binding
on the utility. The contract will (depending on the law of the
relevant country) either be void, or the utility will be able
to terminate the contract and claim damages, or the utility will
be able to affirm the contract and claim damages. In each case,
it is highly likely that the utility will not re-pay the loan
in full to the bank, as the contract price will probably have
been inflated both by the cost of the bribe and the additional
profit which the Supplier, joint venture or consortium partner
or sub-contractor may have been able to secure as a result of
the bribe. The bank will therefore seek indemnity from ECGD for
the unpaid portion of the loan interest and capital. In this case,
it is unlikely that ECGD can obtain recourse from the utility.
It would seem obvious that ECGD should therefore seek recourse
from the Supplier, as the Supplier has either paid a bribe, or
the bribe has been paid by an organisation for which the Supplier
would, under normal contractual principles, be liable. If the
Supplier had not itself paid, approved or acquiesced in the bribe,
it would then, under normal contractual principles, be able to
recover the bribe and consequent damages from the party who paid
or approved the bribe.
12. However, ECGD has only retained very
limited rights of recourse against the Supplier in the above scenario.
Paragraph 7.3 of the Premium and Recourse Agreement provides that
ECGD has the right of recourse against the Supplier when "the
Supplier or anyone (including any employee) acting on the Supplier's
behalf (with due authority) or with the Supplier's prior consent
or subsequent acquiescence, has engaged, or engages, in any Corrupt
Activity in connection with the Supply Contract or any Related
Agreement . . .". Therefore, this right of recourse would
not apply, for example, to the following situations:
(a) A Corrupt Activity undertaken by an employee
of the Supplier unless it could be proved that the employee was
acting with "due authority, prior consent or subsequent acquiescence"
of the Supplier. For example, the Supplier's project director
may authorise a bribe without board authority, and contrary to
the company's anti-corruption code. Authority may be difficult
to prove.
(b) A Corrupt Activity undertaken by an agent
of the Supplier unless it could be proved that the agent was acting
with the "due authority, prior consent or subsequent acquiescence"
of the Supplier. In practice, a company would be unlikely to give
an agent express authority or consent to bribe. Acquiescence may
be difficult to prove.
(c) A Corrupt Activity undertaken by the
Supplier's parent, associated or subsidiary company, joint venture
or consortium partner, sub-contractor or supplier, or by any of
their employees or agents unless it could be proved that:
(i) These parties were acting "on
behalf of" the Supplier. This may be difficult to establish.
If a consortium partner, for example, paid a bribe which assisted
the consortium win the contract, the Supplier would probably allege
that the consortium partner was acting in its own right, and not
on behalf of the Supplier; or
(ii) These parties were acting with the
Supplier's "due authority, prior consent or subsequent acquiescence".
In practice, a company would be unlikely to give one of these
parties express authority or consent to bribe. Acquiescence would
be difficult to prove.
13. TI(UK) dealt with this point as follows
in paragraph 46 of its November 2005 Submission to ECGD (which
was supplementary to TI's June 2005 Submission to ECGD, and which
responded to ECGD's October 2005 Interim Response):
"TI(UK)'s June 2005 Submission stated that
the Premium and Recourse Agreement should be amended so that it
expressly states that ECGD will have full right of recourse against
the Supplier in the event of any Corrupt Activity in relation
to the Supply Contract and any Related Agreement undertaken by
the Supplier, its Controlled Companies, Associates, Agents, sub-contractors,
suppliers and anyone acting on their behalf, whether or not the
Supplier had consented to, or knew of these activities, and whether
or not the Supplier had taken reasonable steps to prevent them.
It cannot be correct that the taxpayer indemnifies the Supplier
in any circumstance against Corrupt Activities by organisations
which are within the Supplier's control or contractual domain.
This is a serious flaw in the allocation of risk. ECGD's October
2005 Interim Response does not incorporate this recommendation.
This is a serious deficiency."
14. ECGD responded to this point as follows
in paragraph 134 of its Final Response: "It was suggested
that the declaration in the Buyer Credit Application Form and
the recourse provision in the Premium and Recourse Agreement should
apply irrespective of the Applicant's complicity. It is the view
of HMG that it would be unreasonable to impose an absolute liability,
irrespective of fault or complicity, upon the Applicant for what
might be a very substantial sum of money unless, as was mooted
in the Interim Response, in substitution for the provision of
the Agent's identity. Should the circumstances occur where there
was a conviction of anyone concerned with Corrupt Activity, ECGD
would consider those circumstance to see whether there had been
any complicity."
15. Therefore, ECGD is acknowledging that
there would be no recourse against the Supplier unless complicity
by the Supplier could be established. Therefore, if the utility
justifiably defaults on repayment of the loan due to a corrupt
act by the Supplier's employee, group company, joint venture or
consortium partner or sub-contractor, ECGD and not the Supplier
will bear the loss in the absence of proof of complicity by the
Supplier.
16. This exception to the recourse provisions,
in relation to corruption, has three consequences:
(a) It leaves open the possibility for concealed
complicity by the Supplier (which will not be difficult to contrive—particularly
in view of the limitations now placed by ECGD on the Supplier's
disclosure requirements and ECGD's inspection powers—see
below). Such concealment is quite probable given that companies
who wish to participate in corruption will, of necessity, try
to conceal their complicity.
(b) The taxpayer must bear the cost of corrupt
contracts where such complicity cannot be proved (even though
it may well have existed). ECGD apparently believes that while
it is unreasonable for the Supplier to bear the cost of corruption
in such circumstances, it is quite reasonable for the taxpayer
(who is considerably more remote from the contract) to do so.
(c) It leaves an inexplicable inconsistency
in the recourse provisions. While ECGD sees it as reasonable to
have an absolute right of recourse against the Supplier in respect
of all other defaults, it sees it as unreasonable to do so in
respect of corruption.
17. ECGD has therefore chosen to make an
exception in its recourse arrangements for corrupt (and, therefore,
illegal) contracts. It is, therefore, obliged to bear the cost
of such contracts in circumstances where either the Supplier has
no complicity in the corruption, or where the Supplier succeeds
in concealing its complicity. Such provisions increase the likelihood
that ECGD will support contracts tainted by corruption. Corrupt
Suppliers have the comfort that there will be no recourse against
them so long as their complicity in corruption can be concealed.
Non-corrupt Suppliers have a reduced incentive to endeavour to
ensure that their business partners do not engage in corruption,
as they are aware that ECGD will not have the right of recourse
in the event of corruption by these parties. The inability of
ECGD to obtain recourse in these circumstances means that ECGD
is actually providing insurance against corruption by these parties.
As ECGD is publicly funded, the UK taxpayer is unwittingly being
obliged to underwrite corrupt acts. The inability of ECGD to obtain
recourse in these circumstances is contrary to normal contractual
principles, to the UK's treaty obligations, and to the UK Government's
and ECGD's express commitment to combat corruption.
18. TI(UK) Recommendation: The Premium
and Recourse Agreement should be amended so that it expressly
states that ECGD will have full right of recourse against the
Supplier in the event of any Corrupt Activity in relation to the
Supply Contract and any Related Agreement undertaken by the Supplier,
its employees, Agents, group companies, Consortium Partners, sub-contractors,
suppliers and anyone acting on its or their behalf, whether or
not the Supplier had consented to, or knew of these activities,
and whether or not the Supplier had taken reasonable steps to
prevent them.
DISCLOSURE
19. ECGD's requirements in relation to disclosure
by the Supplier continue to be materially inadequate.
20. Banks normally only require export credit
guarantees in high risk countries, and in relation to high risk
borrowers. Perhaps, unsurprisingly, these countries tend to be
those which, according to Transparency International's Corruption
Perceptions Index, are perceived to be the most corrupt. Most
of ECGD's business is in the infrastructure and defence sectors
which, according to TI's Bribe Payers' Index, are the two most
corrupt sectors in the world. ECGD is therefore on notice that
there is a very high risk of corruption in relation to projects
it is requested to guarantee. As most cases of corruption never
come to light, prevention is vital. While there is a limit to
what ECGD can achieve, TI(UK), and other NGO's such as the Corner
House and ECA Watch, have long argued that ECGD and other export
credit agencies should require greater disclosure in relation
to the project participants. In particular, the very high risk
of corruption by the agents of the Supplier, or of the Supplier's
group companies and joint venture and consortium partners has
been pointed out, and it has been stressed to ECGD that full disclosure
should be required in relation to these agents.
21. Three major issues of concern remain
in this area in relation to the March 2006 Procedures.
Disclosure of the identity of agents
22. ECGD has revised its anti-bribery procedures
in relation to disclosure of agents three times during the last
two years (in May 2004, December 2004, and March 2006).
(a) ECGD's May 2004 procedures required disclosure
by the Supplier of details in relation to the agents appointed
by the Supplier, or by the Supplier's group companies, or by the
Supplier's joint venture, consortium and similar partners.
(b) ECGD's December 2004 procedures required
disclosure only of agents appointed by the Supplier, or by companies
controlled by the Supplier.
(c) ECGD's March 2006 procedures only require
disclosure of details in relation to agents appointed by or on
behalf of the Supplier. While it could be argued that an agent
appointed, for example, by the Supplier's joint venture partner
was also acting "on behalf of" the Supplier, in most
cases the Supplier would maintain that the agent was only acting
on behalf of the joint venture partner, and would not therefore
provide disclosure to ECGD. In practice, therefore, disclosure
is only likely to be made in relation to agents appointed by the
Supplier. There has therefore been a gradual scaling back by ECGD
of its disclosure requirements in relation to agents.
23. It is well known that agents appointed
by group companies of the Supplier, or by the Supplier's joint
venture or consortium companies, could pay bribes in relation
to the export contract. TI(UK)'s June 2005 and November 2005 Submissions
therefore recommended the reinstatement of the obligation under
ECGD's May 2004 procedures to disclose details of agents appointed
by the Supplier's group companies, or by its joint venture, consortium
or similar parties.
24. ECGD's response to this issue is as
follows (paragraph 77 of ECGD's Final Response): "It would
impose an unjustifiable burden on Applicants to oblige them to
provide the names of the Agents of Consortium Partners or other
Group Companies. Moreover, in the case of Consortium Partners,
it is conceivable that it would be impossible for the Applicant
to acquire the necessary information."
25. This is an astonishing statement from
ECGD, and is totally incorrect. All ethical companies are now
aware of the extreme criminal law and civil law risks of corruption
by agents, and would require disclosure of these details by their
group companies and joint venture and consortium partners as a
matter of proper anti-corruption due diligence and good business
sense. It would therefore be easy for the Supplier to provide
these details to ECGD. It is difficult to comprehend why ECGD,
when the risks of bribery by agents are so well known, and have
been extensively pointed out by TI(UK) and other organisations
during the consultation, should have effectively limited disclosure
requirements only to agents of the Supplier.
26. TI(UK) Recommendation: ECGD
should reinstate the obligation on the Supplier under its May
2004 procedures to disclose details of agents appointed by the
Supplier, and by the Supplier's group companies, and by the Supplier's
joint venture, consortium or similar parties.
Confidentiality provisions
27. ECGD has established under its March
06 Procedures a special highly confidential disclosure system
in relation to agents. If the Supplier requests these "special
handling arrangements", only a few senior executives in ECGD
are permitted to know the identity of the Supplier's agent. These
arrangements include mandatory destruction by ECGD of all electronic
records of due diligence on these agents.
28. The reason for this "Cold War"
type of confidentiality is hard to comprehend. Many agents and
intermediaries are companies or individuals of the highest integrity,
and provide legitimate business services for fair remuneration.
Often they are appointed as an alternative to the Supplier establishing
a subsidiary in that territory. The agent may provide services
such as an office, engineers, translation, co-ordination, liaison
with the client, show room or warehouse. They would be paid a
market rate for these services. 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 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.
29. At the other end of the spectrum are
the murky intermediaries who "assist in winning the contract",
and are paid amounts vastly disproportionate to the actual work
they undertake. Their commissions are often used wholly or partially
to pay bribes. They are normally people of influence with government
officials, and are often related to senior officials. Sometimes
the agents are companies owned by the senior officials themselves.
These agents would not wish their identities to be known. If the
local population or press knew who the agent was, or what he was
being paid, there could be adverse publicity and repercussions
for the Supplier and its agent. In particular, the press or local
whistle-blowers may reveal that the agent had a close relationship
with a senior official connected with the transaction. Therefore,
there should always be extreme concern where the Supplier attempts
to keep these details confidential. 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.
30. It is therefore impossible to understand
why ECGD has permitted these special confidential arrangements
under its March 06 procedures. The justification given by ECGD
(that the details have to be kept confidential because disclosure
of the identity of the agent may damage the Supplier's "competitiveness
and commercial interests") is simply not credible.
31. TI(UK)'s advice to any export credit
agency would be that the less willing the Supplier is to reveal
details of its agent to the public, the higher the suspicion is
that the agent may be corrupt, and the higher the level of due
diligence which the export credit agency should undertake. However,
by its commitment to keep the identity of the agent secret, ECGD
has made it very difficult for itself to undertake proper due
diligence. Due diligence requires more than a search of the internet.
It requires actions such as making enquiries about the agent in
the relevant territory, and making visits to the agent's premises
to ascertain whether he exists, and is capable of undertaking
the services required. This type of due diligence enquiry would
normally be undertaken by professional companies who specialise
in this field. How can this be undertaken if only a few very senior
officials in ECGD are entitled to know the agent's identity? As
it would be virtually impossible for ECGD, under the restrictions
of the confidentiality arrangements, to undertake proper due diligence,
ECGD's only alternative when a Supplier asks to use the special
confidentially arrangements would be to refuse cover. Allowing
the Supplier special confidentiality arrangements is therefore
an unacceptable position.
32. TI(UK) Recommendation: This
confidentiality concession should be withdrawn.
Agency Commissions
33. Under the March 2006 Procedures, the
Supplier is required to disclose to ECGD the identity of any agent
appointed by it or on its behalf in relation to the Supply Contract
and any Related Agreement (paragraph 7.1 of the Guarantee Schedule).
However, the Supplier is only required to disclose to ECGD the
amount of the commission paid to the agent in relation to the
Supply Contract (paragraph 7.5 of the Guarantee Schedule).
34. This is a weakness in the procedures,
as it would permit a Supplier to appoint an agent under a Related
Agreement, and therefore avoid disclosure of the commission.
35. TI(UK) Recommendation: The Supplier
should also be obliged to disclose details of commission paid
to the agent in relation to any Related Agreement. This may be
a drafting error by ECGD in preparing the March 2006 Procedures,
and is easily corrected.
Inspection
36. ECGD's March 2006 Procedures do not
retain adequate powers for ECGD to undertake effective post-contract
inspection to help ensure that no corruption has taken place,
or could take place (clauses 1.8 and 6.2 of the Premium and Recourse
Agreement). The purpose of wide ranging inspection powers is not
only to identify corrupt behaviour. The retention of these powers
acts as a powerful deterrent, as the Supplier is always aware
that ECGD may inspect. Both TI(UK)'s June 2005 and November 2005
Submissions commented that the wording in ECGD's Procedures was
deficient, and suggested improvement. While two of TI(UK)'s points
have been dealt with by ECGD, the other deficiencies remain in
the procedures contained in ECGD's Final Response. These are as
follows:
(a) The inspector can only visit the Supplier's
UK premises to inspect records. However, the issue concerns exports
and overseas bribery. Records may be kept at the Supplier's overseas
premises, and the right to inspect should extend to these premises
also.
(b) The inspector does not have access to
the records of parent, associated and subsidiary companies, agents,
joint venture and consortium partners, sub-contractors or suppliers,
even though bribes may, with or without the knowledge or wilful
blindness of the Supplier, have been arranged through these companies.
(c) 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
or out of a contract variation). An inspection of pre-award documents
would be unlikely to reveal this. Inspection should not be limited
to this period.
(d) Records can only be inspected for the
sole purpose of verifying statements made and information given
to ECGD by the Supplier in the Application. Records cannot therefore
be inspected for the general purpose of ascertaining whether there
has been corruption in relation to the award or performance of
the Supply Contract or any Related Agreement.
(e) Five business days' notice is required
for inspection. This removes the very powerful weapon of spot
checks, and would enable a corrupt Supplier to destroy or falsify
documents.
37. TI(UK) Recommendation: To deal
with the above points, TI(UK) recommends (as it did in its June
2005 and November 2005 submissions) that clauses 1.8 and 6.2 of
the Premium and Recourse Agreement should be amended with the
result that:
(a) The inspector can at any time visit the
premises of the Supplier, parent, associated and subsidiary companies,
agents, joint venture and consortium partners, sub-contractors
or suppliers, wherever located.
(b) The inspector can at any time have access
to the records and staff of the Supplier, parent, associated and
subsidiary companies, agents, joint venture and consortium partners,
sub-contractors or suppliers. Such records and staff should be
limited to those relevant to the Supply Contract and Related Agreements.
(c) Records can be inspected and audited
in relation to the period before, during and after the signing
and performing of the Supply Contract and Related Agreements.
(d) Records can be inspected not only for
the purpose of verifying statements made and information given
to ECGD by the Supplier in the Application, but also to ascertain
whether there is any evidence of Corrupt Activity in relation
to the Supply Contract and Related Agreements.
(e) Records can be inspected on a spot-check
basis (ie no requirement for notice).
(f) Copies of all the above documents can
be requested.
CONCLUSION
38. The UK has ratified both the OECD Convention
on Combating Bribery of Foreign Public Officials in International
Business Transactions and the United Nations Convention against
Corruption.
39. ECGD's anti-bribery procedures will
be assessed in relation to major anti-corruption commitments the
UK has made. For instance, on the initiative of the UK, the G8's
Gleneagles Communiqué of July 2005 committed the G8 to:
"Reduce bribery by the private sector by
rigorously enforcing laws against the bribery of foreign public
officials, including prosecuting those engaged in bribery; strengthening
anti-bribery requirements for those applying for export credits
and credit guarantees, and continuing our support for peer review,
in line with the OECD Convention; encouraging companies to adopt
anti-bribery compliance programmes and report solicitations of
bribery; and by committing to co-operate with African governments
to ensure the prosecution of those engaged in bribery and bribe
solicitation".
40. The Commission for Africa, whose recommendations
have the full support of the UK Government, stated in its 2005
Report that:
"Developed countries should encourage their
Export Credit Agencies to be more transparent and to require higher
standards of transparency in their support for projects in developing
countries".
41. ECGD states in the introduction to its
Buyer Credit Guarantee that "the OECD countries, including
the United Kingdom, are committed to combating corruption and
money laundering". It also states on its web-site that it
is ECGD's policy to:
"deter illegal payments, corrupt practices
and money laundering by Applicants for ECGD's support" and
to "ensure, as far as is practicable, that all transactions
that ECGD supports are in compliance with all applicable laws,
regulations and international agreements to which the UK is a
party."
42. However, despite the above express commitments,
and after a year of consultation, ECGD's anti-bribery procedures
are still fundamentally flawed in the areas referred to above,
despite these issues being raised in detail with ECGD by TI(UK)
and others during the consultation. It is hard to understand the
reluctance of ECGD to require proper recourse against the Supplier,
and to require more onerous disclosure and due diligence obligations
by those whose projects are guaranteed by UK public funds. At
present, ECGD's procedures not only facilitate corruption by inadequate
disclosure, but may perversely underwrite corruption through defective
recourse provisions.
43. TI(UK) calls on ECGD to implement the
above recommendations as a matter of urgency, and to enforce its
anti-corruption procedures with rigour.
44. This submission has been made on behalf
of Transparency International (UK). TI(UK) is the UK national
chapter of Transparency International, which is the world's largest
non-governmental anti-corruption organisation. TI(UK) works with
governments, business and civil society with the aim of helping
bring about a reduction in both domestic and international corruption.
This submission has been developed by a working group established
by TI(UK) for this purpose.
Transparency International (UK)
April 2006
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