This post is provided by our “guest blogger” Bernhard Brand. Bernhard Brand works as research assistant at the Institute of Energy Economics at the University of Cologne. This contribution is the first of a series of critical reviews of transnational economic governance arrangements, based on an analysis of policy reports undertaken by graduate students of Sigrid Quack’s seminar on Transnational Economic Governance during the summer term 2010.
The Siemens corruption scandal of the year 2007 was one of the largest bribery cases in the economic history of Germany. It ended with a number of (suspended) jail sentences for high-ranking executives and a painful €2.5 billion penalty to be paid by Siemens for running an extensive worldwide bribery system which helped the Munich-based company to win business contracts in many foreign countries, as for example in Russia, Nigeria or Greece. Interestingly, if the bribery case just had happened a few years before, there wouldn’t have been any sentence at all for Siemens: Until 1999, the practice of bribing officials and decision makers in foreign countries was not considered a crime in Germany. And even worse: The German law allowed companies to deduct bribes from their tax declarations – under a tax law provision ironically termed “useful payments” (in German: “nützliche Aufwendungen”). This incentive for the German industry to perform corruption in the international business became abolished under the pressure of the OECD Anti-Bribery Convention. The convention criminalizes the so-called ‘foreign bribery’, the act where a company from one country bribes officials of a ‘foreign’ country. Germany, as well as the other OECD members had to align their legislation to the new OECD standards, enabling their courts to punish the person or entity who offers the bribe – even if the bribing action originally took place somewhere else in the world.
The OECD Anti-Bribery Convention is a legally binding international agreement, which last year celebrated its 10th anniversary. It has been ratified by 31 OECD members, as well as 7 countries aspiring OECD membership: Argentina, Brazil, Bulgaria, Chile, Estonia, Israel, Slovenia, and South Africa. For these candidate countries (recently, Chile, Estonia, Israel and Slovenia received an official invitation to join the OECD), the compliance with the Anti-Bribery convention is (or was) an important precondition for the accession to OECD.
Technically, the convention has a very specific focus: It deals with the bribery of foreign officials, but interestingly only criminalizes the person or entity who offers the bribe – the “supply side” of corruption. The “demand side” of the bribing transaction is not covered by the OECD convention. An example: if a UK-based petrol company bribes a Nigerian minister for obtaining an oil extraction concession, the offence – according to the convention – is committed by the UK company, regardless whether the Nigerian minister is persecuted in his home country or not.
This very narrow focus of the OECD convention stands in contrast to the other big anti-bribery document, the United Nations Convention against Corruption. The UN convention, adopted in 2003, has a broader, all-encompassing approach: It also includes the demand side of bribery as well as a number of other aspects, such as money laundry, asset recovery, international assistance or corruption prevention. In my eyes, it is the self-restriction to the singular aspect of foreign bribery that makes the OECD convention a much stronger instrument compared to the overambitious, but relatively toothless UN convention- a document which was quickly ratified by 140 states – even by those with the worst corruption reputation worldwide. Certainly, another advantage of the convention is that it addresses the economic interests of the OECD members. Being mostly industrialized, export-oriented countries, they simply want that their enterprises act on a leveled playing field in international business – and do not to get entangled in costly bribery transactions with third countries.
The principal obligation for the convention’s signatory countries is that they must criminalize foreign bribery in their national laws. Moreover, each country has to show that it persecutes bribery cases, and that proportionate sanctions have been put up for convicted companies or persons. Because of the different legal systems, the anti-bribery convention does not prescribe a uniform implementation standard for the member countries. Nevertheless, a certain consistency of the results (“functional equivalence”) is required.
The implementation of the convention in the different member countries is regularly reviewed by the OECD Working Group on Bribery. The working group has a permanent secretariat in Paris within the Anti-Corruption Division of the OECD Directorate for Financial and Enterprise Affairs. It organizes quarterly meetings of representatives of all 38 countries which usually are public servants of the respective ministries of justice, trade or foreign affairs.
The by far most important task of the working group is its monitoring activity. Basically, it consists of two stages: (1) a constant review of the national laws of the member states. (2) An evaluation of the effectiveness of these legal frameworks in practice. As a common pattern within the OECD, the monitoring is performed via mutual evaluation between the countries. A delegate of one country invites reviews by other delegates and likewise serves as examiner for other countries. This peer evaluation process shall motivate the parties to ensure a high level of compliance to the convention. Country monitoring reports are regularly published.
If members failed to comply with the OECD anti-bribery standards, critical and sometimes even harsh statements can be observed in the reports. In 2008, for instance, the UK was in the focus. The criticism referred to the so-called “Al Yamanah” corruption scandal in 2007 where a British weapons manufacturer (BAE Systems), was alleged to have bribed Saudi Arabian officials in order to obtain a sales contract for combat air fighters. A lawsuit against BAE Systems had been initiated, but was then stopped from the very top by the British Attorney General – for reasons “of national and international security”. The termination of the investigation – a blunt violation of the OECD convention – was heavily complained in the OECD 2008 report, which expressed its “disappointments and serious concerns with the unsatisfactory implementation of the Convention by the UK”. The Al Yamanah case made clear that the OECD has almost no sanction instrument to fight against infractions of the convention: The outmost measure it could take, was a formal public ‘blaming’ of the UK and sending a high level delegation to talks with the British government. The subsequent release of a new UK bribery act earlier this year can be considered as a response to the OECD pressure – but it remains to be seen whether this will in practice lead to a more effective persecution of bribing UK companies.
While it is apparently difficult to hold sway over established OECD members, the Working Group on Bribery can exert much more pressure on those countries which are not yet member of the OECD, but aspire membership. The Working Group on Bribery plays a key role in the accession process for OECD membership. Many emerging countries are striving for OECD membership, because the organization promises prestige and the possibility to take part in influential discussions about international economic affairs. Argentina, for instance, is still in the process of becoming a member of the OECD, but undertakes serious efforts complying to the OECD anti-bribery convention. This can be considered as an example how a combination of incentives, pressure and the common interest of a group of states can constitute an effective mechanism pushing forward the transnational emergence of legal rules.
The OECD heralds its Anti-Bribery convention as “revolutionary” and points to an increasing number of successful investigations on foreign bribery cases in OECD countries. Until 2009, the Working Group report summarizes 138 convictions and fines up to € 1.24 billion that had been imposed on persons or companies which committed foreign bribery. This is certainly an achievement.
However, the aforementioned UK case shows that the anti-bribery convention can also be completely ignored by an OECD member, without any major consequences. Competition in the international business is tough, especially under the current economic crisis. Therefore, it is very likely that governments will become more and more inclined to protect their home industries, even if this requires disregarding, or not-enforcing the OECD anti-bribery convention. Transparency International, which regularly publishes an independent progress report on the OECD convention, is likewise pointing to this risk, and characterizes the current situation as “dangerous” and “unstable” for the convention. In its country evaluation, the NGO comes to the conclusion that only 4 of the 36 evaluated signatory states properly enforce the OECD convention (see table in the Annex). Transparency International therefore calls for more bilateral, high-level pressure on the “laggards” among the OECD countries.
Putting the OECD members back on the right track might be helpful, but wouldn’t provide a solution to a much larger dilemma: Since a few years it is not just the OECD members doing international business. Non-OECD countries like China, India or Russia have become powerful international players and their companies have not exactly a good reputation of a fair and decent business conduct in foreign countries. One only has to think of China’s expansion in certain African countries where bribery is commonplace. Although the OECD Working Group on Bribery has entered into a dialogue with China about anti-corruption measures, it remains unlikely that China will quickly adopt (and implement) the OECD convention. It remains to be seen how the OECD members react if they become aware that their industries lose important market shares to Chinese (or other emerging countries’) companies, which are simply not bound to any restrictions concerning bribery. In my opinion this represents the most dangerous threat to the certainly very laudable fight of the OECD against international corruption.