APPENDIX 8
Second supplementary memorandum by ECGD
THE IMPACT
OF THE
MAY 2006 OECD ACTION
STATEMENT ON
ECGD'S STANDARD
RECOURSE RIGHTS
RELATING TO
CORRUPT ACTIVITY
1. "Recourse" in this connection
means a liability owed to ECGD, as a result of a contract between
ECGD and an Applicant, to pay ECGD if certain specified events,
including corrupt activity, occur. The Transparency International
("TI") assertion is that ECGD's recourse provisions
will have to change to penalise Applicants in circumstances where
they are not guilty of any complicity in the corrupt activity.
2. It is important to bear in mind that
ECGD does already take sweeping recourse rights against Applicants
in relation to corrupt activity. Not only where the Applicant
itself has been guilty of corrupt activity but where it has consented
to, authorised or acquiesced in the corrupt activity of others
it must provide recourse to ECGD for all sums which ECGD has had
to pay out. In all these cases the recourse right is for 100%
of whatever ECGD has had to pay out. The TI assertion is that
the Action Statement obliges ECGD to go even beyond that. In HMG's
view, this is not the case.
3. Insofar as material, the Action Statement
(full copy attached as Annex A) provides:
". . . the Members of the OECD Working party
on Export Credits and Credit Guarantees (ECG) agree: . . .
2. To take, appropriate measures to deter
bribery in international business transactions benefiting from
official export credit support, in accordance with the legal system
of each member country and the character of the export credit
and not prejudicial to the rights of any parties not responsible
for the illegal payments, including: . . .
(j) If, before credit, cover or other
support has been approved, there is credible evidence that bribery
was involved in the award or execution of the export contract,
suspending approval of the application during the enhanced due
diligence process. If the enhanced due diligence concludes that
bribery was involved in the transaction, the Member shall refuse
to approve credit, cover or other support.
(k) If, after credit cover or other support
has been approved bribery has been proven, taking appropriate
action, such as denial of payment, indemnification, or refund
of sums provided."
4. TI quoted paragraph 2(J) of the new Action
Statement to the Committee in support of their assertion that
HMG will have to change its policy on recourse. The change that
TI say is compelled is that, in future, ECGD's recourse provisions
must include an obligation that an Applicant will pay to ECGD
everything that ECGD is obliged to pay out where a corrupt act
has been committed by anyone irrespective of whether the Applicant
has knowledge of or complicity in the commission of that act.
5. Paragraph 2(J) of the new Action Statement
deals with whether Export Credit Agencies should give cover at
all where there is "credible evidence" of corruption
which is discovered before support has been approved. Paragraph
2(J) thus has no bearing on the terms of recourse provisions to
be included in a Support Contract which is approved, which provisions
give future rights in circumstances where corrupt activity is
subsequently discovered.
6. Paragraph 2(K) deals with action to be
taken of corruption is discovered in a transaction after support
has been granted. But it remains HMG's position that the Action
Statement does not oblige it to alter ECGD's standard recourse
rights.
7. HMG does not believe that imposing an
absolute liability, irrespective of fault or complicity, for what
could be a very substantial sum of money is an "appropriate
action" within the meaning of paragraph 2(K). This view is
shared by the OECD since the Action Statement makes clear that
any measures taken pursuant to it should not be "prejudicial
to the rights of any parties not responsible for the illegal payments".
June 2006
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