The Contribution of the 1999 OECD Anti-Bribery Convention towards

Combating Bribery in International Business Transactions

 

Jerry F. Xia

 

Erasmus University Rotterdam

Faculty of Law

 

April 2001

 

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INTRODUCTION

 

Under the auspices of the Organization for Economic Cooperation and Development (OECD)[1], the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the OECD Convention)[2] which was signed in Paris on 17 December 1997 by 29 OECD Members[3] and 5 non-member countries[4] has entered into force since 15 February 1999. By making it a crime to offer, promise or give a bribe to a foreign public official in order to obtain or retain international business deals, the Convention represents an important step in the concerted international effort to crack down transnational bribery and reduce the rampant corruption in world economies[5].

Generally, the OECD Convention provides two approaches towards achieving its goals to support sound economic expansion and fight distortion of fair competition. It foremost requires its signatory countries to outlaw bribes to foreign public officials of any country (not just of the countries that are parties to the Convention) and impose criminal penalties on those who commit such bribery acts in international business transactions[6]. Besides, the Convention also contains non-criminal rules i.e. in order to combat bribery more effectively, each Party is obligated to take necessary measures to ensure corporate accountability and audit-ability in its own territory so as to detect corrupt payments[7].

By adopting or harmonizing their corresponding domestic legislation into consistence with the Convention, signatories’ effective implementation of the OECD Convention is targeted to provide a unique extra-territorial approach towards combating the widespread bribery phenomenon that has become more and more frequent to involve transnational or cross-border elements. Although nearly all countries do have domestic laws criminalizing the bribery of their own pubic officials, the on-growing transnational bribery which harms severely global economic development, especially the investment in most developing countries, has made it very necessary and even urgent to establish a multilateral legal instrument that regulates the bribery and corruption on the international level. Under these circumstances, the OECD Convention’s formulation and entry into force, although proven never an easy job to accomplish[8], are undoubtedly a great achievement and demonstration of the continuous global anti-bribery endeavors in this respect. As commented by Prof. Giogio Sacerdoti, Vice-Chairman of the OECD Working Group on Bribery in International Business Transactions, the OECD Anti-Bribery Convention is “the first tangible and most important global result of international initiatives that developed when, under pressure from global public opinion, a number of scandals and investigations revealed much about corruption in international affairs.”[9]

 Corruption usually requires two actors - the supplier of the bribe and the one who receives the bribe[10]. The OECD Convention, however, only regulates the conduct of bribe-givers or the supply-side of the transaction while does not resolve the remaining concerns with the bribe-takers i.e. those foreign public officials who accept the bribe. [11]In addition, it still have quite a few other shortcomings, for example it does not obligate Parties to disallow the deductibility of bribes to foreign public officials,[12] which makes it somewhat less efficient to fulfill the objectives of the Convention in some countries. Nevertheless, the 1999 OECD Anti-Bribery Convention, though still far from perfect, is of considerable contribution to the battle against bribery and corruption in international business transactions and marks a milestone development in establishing a sound international ant-bribery legal regime.

 

BACKGROUND OF THE OECD CONVENTION

 

The Mounting Concern over Bribery in International Business Transactions

 

The OECD Convention is a timely creation in response to the mounting concern over the global pervasive bribery and corruption over the past several decades. Especially since the 1990’s, with the speeding of global economic integration, bribery of foreign public officials has become more terrible and pensive than ever before in international business transactions. Like an infectious flu it places weighty corrosive influences on a country’s political and social stability as well as its international business activities, including international trade and investment. Most typical examples may be first found in quite a few developing countries and those in transition to market economies such as India, Pakistan, Indonesia, Philippines, Brazil and some former Soviet Union countries in which the serious bribery and corruption have frequently triggered political crisis and economic deterioration. As estimated by World Bank[13] in 1997, the global fund used for bribery totally accounts for 5% of all developing countries’ foreign direct investment (FDI) and imports, counting up to 80 billion dollars annually[14]. Thus as a result those firms who play by the rules and compete on the merits of their products or services often lose the game, so that it is never unusual to see the situation where “bribe” often makes “bride”(FDI) run away[15].

The widespread “transnational bribery” phenomenon in global marketplace can “raise serious moral and political concerns, undermine good governance and economic development, and distort international competitive conditions”[16]. The traditional unilateral anti-bribery initiatives, however, tend to be inefficient and isolate the intervening country and have often been criticized for interfering in other states’ sovereignty.[17]  Therefore, in the wake of huge costs associated with corruption and the keen necessity of founding a multilateral legal framework aimed to combat bribery of foreign public officials in international business transactions, the OECD with its Anti-Bribery Convention has stepped out a first but important pace ahead in the right direction.

                                             

The Evolution of the OECD Convention

 

The OECD’s concern over corruption can be traced back as long ago as 1976 by developing its Guidelines for Multinational Enterprises, clearly rejecting that paying and asking of bribes in all business transactions.[18] Trying to provide take a multifaceted approach to fighting transnational bribery, at the initiative of the United States[19], the OECD began its work in 1989 with the establishment an Ad Hoc Working Group to develop a co-ordinated international response. During the following several years, most other OECD countries had soon become aware of the recognized increase in global bribery which not only is a serious threat to the healthy economic development but also ruins preservation of democracy and misdirects allocation of resources[20]. Thus based on a growing sense that unilateral measures were far from adequate to fight corruption effectively and it was impending to launch a multilateral anti-bribery co-operation between the principal actors[21] in the international economy, the OECD Council in 1994 adopted at ministerial level a first instrument, the initial Recommendation on Bribery in International Business Transactions.22 The Recommendation first called upon the OECD to establish a constant and formal Anti-bribery Working Group tasked to develop proposals to curb the use of bribes to win overseas contracts. Subsequently, in May 1996 and in May 1997 a Recommendation on the Tax Deductibility of Bribes to Foreign Public Officials and a Revised Recommendation on Combating Bribery in International Business Transactions were respectively adopted23. The latter especially made a breakthrough happen about 6 months later24: on 17 December 1997, twenty-nine OECD members and five other participating nations: Argentina, Brazil, Bulgaria, Chile, and the Slovak Republic signed the OECD Convention on Combating Bribery in International Business Transactions. All 34 signatories then committed themselves to ratify and implement the OECD Convention as national legislation by December 31, 1998.25 The Convention finally came into effect in February 1999 when Canada deposited its instrument of ratification --- This had eventually met the formal requirements for entry into force set in Art 15 of the Convention that, the Convention should enter into force on the sixtieth day following the date upon which five of the 10 countries with the largest shares of OECD exports, representing at least 60% of the combined total exports of those 10 countries26, have deposited their instruments of acceptance, approval, or ratification. As of April 2001, 31 signatories had ratified the Convention.27

 

ESSENTIAL EFFORTS OF THE OECD CONVENTION TOWARDS COMBATING TRANSNATIONAL BRIBERY

 

Broad Coverage of Bribery Offences

 

The Convention imposes upon the parties the obligation to make “bribery of foreign public officials” a criminal act28. In order to ensure the effective fight against bribery, the Convention and its Commentaries29 provide for broad definition of constituencies of a conduct of “bribery of foreign officials”. On the supply side of a bribe, not only does it cover “any” natural “person intentionally to” bribe,30 but also obliges the Parties to establish liability of legal persons for the bribery a foreign public official31. In the situation where, under the laws of a Party, criminal responsibility is not applicable to legal entities, the Party is instead required to make them “subject to other effective, proportionate and dissuasive non-criminal sanctions, including monetary sanctions, for the bribery of foreign public officials”.32 

On the demand side or bribe-taker side, the term “foreign public official” is defined in Article 1 para.4 of the Convention as any person holding legislative, judicial or administrative office, whether appointed or elected, of a foreign country33 which includes all levels and subdivisions of government, from national to local. The definition also includes any person who exercises a public function34, for instance for public agencies35 or enterprises36, and any official or agent of public international organizations37.

As regards what conduct can constitute “an offence of bribery of a foreign public official”, the Article 1 of the Convention and its Commentaries give detailed descriptions and explanations, trying to make the Convention’s applicability scope as wide as possible. According to Art. 1 para. 1, such an offence comprises offering, promising or giving any undue pecuniary advantages, gifts, or other favors to a foreign public official as defined. The act of bribery can be committed directly or through intermediaries, for the improper advancement of the official or for a third person, and has to be done with the intention to exert undue influence on the official as to act or refrain from acting38 with the result that the bribing person obtains or retains business or other improper advantages in the conduct of international business. Here the term "improper advantage" means gaining something to which the company concerned was not clearly entitled, for example, an operating permit for a factory that fails to meet the statutory requirements39. This language potentially covers such activities as bribes paid to manipulate the judicial process or to evade payment of taxes40. The Convention also covers complicity in an act of bribery, which includes incitement, aiding and abetting, or authorization of bribing a foreign public official41. For example, if a parent company authorizes a foreign subsidiary to pay a bribe, the act will lead to the exercise of jurisdictional competence and application of criminal law against the parent and/or any of its responsible managers.42 Moreover, attempt and conspiracy to bribe are also considered as complicity as defined in Article 1 para. 2 of the Convention. However, pursuant to the Commentaries supra note 8 and 9 to Article 1 para 1, it is not appropriate to include “facilitation” payments or so-called small bribes that are paid “to induce public officials to perform their functions” in the definition of bribery or a foreign official. For such “corrosive phenomenon”, “criminalization by other countries does not seem a practical or effective complementary action” while it can be addressed by “such means as support for programs for good governance”.43

 

Both Penal and Non-penal Rules

 

The Convention not only requires its signatories to criminalize transnational bribery but also provides non-criminal rules towards combating bribery of foreign public officials in international business transactions. First of all, the offence of bribery shall be subject to criminal sanctions which are “effective, proportionate and dissuasive”, and comparable to penalties imposed for bribery of a country’s own public official. In the case of natural persons, the penalties include “deprivation of liberty” i.e. imprisonment and extradition.44a Other punitive measures, civil or administrative, such as seizure and confiscation of the bribe and the proceeds of the bribery, should be considered by the parties.44b

The Convention also contains reference to the application of money-laundering legislation.45 It regulates that those Parties which has made bribery of its own public official a predicate offence, usually a criminal offence, for the purpose of application of its money laundering legislation shall do so to the bribery of a foreign public official, regardless where the bribery occurred46. This is intended to fulfill the prevention of transnational bribery by making the hiding of bribes and their proceeds more risky and difficult.

As one of the major features of the OECD Convention, besides criminal rules, there are also non-penal requirements for corporate accounting and financial statement47. Although accounting principles already exist in national legislation, in Article 8 the Parties agree to tighten their laws and regulations regarding corporate accountability and company disclosure standards, as may be necessary, for an effective fight against bribery in international business. According to Article 8 para. 2, omissions and falsifications concerning company books, records, accounts and financial statement must be subject to appropriate civil, administrative or criminal penalties. These provisions assume great significance by making the Convention go beyond the penal framework and take on a predominantly preventive role to combat international corruption effectively.48

 

Jurisdictional Criteria and Enforcement Principles

 

The Convention provides delicate criteria for determining each Party’s jurisdiction, in which it has made a good balance between the effective fight against bribery and respect for each Party’s legal tradition49. In Article 4 para. 1, the Convention first requires each Party to establish extensive territorial jurisdiction including jurisdiction over bribery when committed at least partly in its territory. This territorial principle of jurisdiction can be broadly interpreted and legislation should not require strong connection to the alleged offence of bribery50, for example, even the transfer of bribe over accounts at a domestic bank could establish jurisdiction over such offence. Furthermore, Parties can also establish jurisdiction over its nationals with respect to offences committed abroad that covered by the Convention but such jurisdiction based on nationality should be built in accordance to each Party’s general principles for jurisdiction in cases of double criminality51. Whatsoever, each Party is obligated to review its current basis for jurisdiction and take necessary remedial steps to make it as effective as possible in the fight against the bribery of foreign public officials52.

With regard to enforcement matter, the Convention obliges Parties to investigate and prosecute bribery of a foreign public official in spite of the identity of the subject while leaving the relevant applicable rules and principles to the discretion of each Party.53  By regulating so, the provision seeks to secure the efficient and effective enforcement of the Convention and at the same time respect each Party’s sovereignty.

 

Certain Legal Obligations Unrelated to the Creation of a New Criminal Offense

 

Besides main penal obligations and non-penal obligations, the Convention also lays down a few other legal obligations which are unrelated to the creation of a new criminal offense of bribery. Nevertheless, it is somewhat just because of these additional legal obligations that make the OECD Convention stand out against most other traditional international instruments.

First, Article 9 provides for prompt and efficient mutual legal assistance among Parties, in order to facilitate criminal investigations and proceedings as well as non-criminal proceedings against legal persons. According to the Commentaries, such assistance includes the transfer of persons that agree to assist in investigations and to temporarily participate in proceedings without the necessity of extradition proceedings.54  And particularly, any Party cannot decline to render mutual legal assistance for criminal matters of bribery as define in the Convention on the ground of back secrecy55.

Second, Article 10 para. 1 of the OECD Convention mandates that bribery of a foreign official is an extraditable offense under the laws of the Parties, and existing extradition treaties between them. Where no extradition treaty between Parties exists, the Convention may be considered to form the legal basis for extradition.56 Para. 3 of Article 10 requires the Parties to take appropriate measures for extradition or prosecution of its own nationals for offenses covered by the Convention. However, the extradition provision also indicates respect for the sovereignty of Parties by stating that extradition is "subject to the conditions set out in the domestic law and applicable treaties and arrangements of each Party."57

Moreover, for the purpose of above legal obligations, in Article 11, each Party is required to notify the Secretary-General of the OECD an authority or authorities, serving as channel of communication, responsible for making and receiving relevant requests for some particular matters. These particular matters include: consultation for solving jurisdiction conflicts when more than one Party has jurisdiction over an alleged offence described in the Convention58; making and receiving requests for mutual legal assistance between Parties59; receiving the case for prosecution purpose when a Party declines a request to extradite a person for bribery of a foreign public official solely because that such person is its own national60. By imposing obligations to establish such authorities, the Convention constructs a solid basis on national level to realize effective international anti-bribery co-operation.

 Finally, the Parties also commit themselves to establish a international mechanism to systematically monitor and promote the full implementation of the OECD Convention61. According to Article 12, the OECD Working Group on Bribery in International Business Transactions is the forum where such operation takes place. Section VIII of the 1997 Revised Recommendation, containing terms of reference for the OECD Working Group, includes for this purpose regular reviews based on a system of self- and mutual evaluation. The Working Group then plays a supervisory role through periodic examinations of measures adopted by the signatory Parties and their concrete application. This mechanism makes the Convention’s most outstanding characteristic because it replaces the traditional dispute-settlement procedures which are often taken in criminal conventions. “It thus provides a more flexible and efficient way to ensure the respect of reciprocal commitments and, in general, the realization of the Convention’s objectives. It aims, emphatically, not just introducing criminal rules into national legislation, but more specifically at deterring, preventing and combating international corruption through effective, co-ordinated national measures.”61

 

Open to Any Joining Forces

 

As transnational bribery never merely takes place within OECD Member States, the battle against bribery surely needs more participating forces from whole international community. The Convention, which although only has 34 signatories, is thus also open to any non-OECD countries, especially to developing countries.62 However, such accession shall be subject to the regulation of Article 13 of the Convention: a non-member state who wants full participation shall first gain admission to the OECD Working Group and must adhere himself to the 1997 Revised Recommendation and the 1996 Recommendation on the Tax Deductibility.63 Since the Convention was signed in 1997, some countries outside OECD have formally applied to join the Working Group, and others have made informal inquiries to the OECD Secretariat. The Working Group has also debated guidelines for future enlargement.64 In any event, any non-signatories are invited to co-operate even if they are not ready to become participants in the OECD Working Group65.

 

CONCLUSION

 

Emergence of An International Anti-Bribery Regime

 

All in all, the 1999 OECD Convention represents a consensus based on shared objectives to promulgate an effective international legal instrument containing reciprocal and comparable legal commitments to combat transnational bribery.66 Towards this end, the Convention has successfully established an international anti-bribery legal framework which although is still primitive and far from sound. However, this has been a crucial stage because it not only marks the first major step from each Party’s unilateralism towards collective act against bribery phenomenon, but also sees an important development of international anti-bribery efforts from a “soft law” (regulations) or “ model law” level upgrading to a broadly binding convention level67. According to the Convention’s mandate, the OECD Working Group will continue to identify and address issues in the context of the Convention and the 1997 Revised Recommendation that remain outstanding and require further consideration on an international level.68 The work will primarily focus on issues which have not been dealt with in the Convention such as: 1) the conduct of bribery takers; 2) tax deductibility of bribes; bribery of political candidates for public office and political parties in other states; 3) the role of foreign subsidiaries and offshore companies; 4) coercive forms of bribery; and 5) shortcomings in implementation legislation.69

 

Looking Ahead

 

 It perhaps is unrealistic to assert that the transnational bribery phenomenon in international business would soon disappear since the Convention has become effective. Actually in many OECD Member States offences of corruption and bribery can still be reported frequently. For the further effective fight against international bribery, “it is essential that the initiative receive sustained political commitment and the involvement of certain international organizations positioned to play a key role. In fact, a lot of international bodies have become actively involved, including the European Union, the Organization of American States, the International Monetary Fund, the World Bank, the World Trade Organization, the United Nations Development Program, and the World Customs Organization, etc. Moreover, non-governmental organizations, such as Transparency International and the Open Society Institute, as well as international aid providers, both government and private, help raise public awareness of the dangers of corruption and provide technical assistance to countries in designing effective anti-corruption strategies. The involvement of companies, business associations and trade unions remains essential. Likewise, the contribution of free and independent media is vital to exposing corruption and encouraging accountability of public officials.”70

However, the adoption of the 1999 OECD Anti-Bribery Convention has obviously played a pivotal role in addressing the current worldwide concerns regarding bribery and corruption. We are strongly convinced to believe that its further development, especially its pursue of a multi-faceted strategy in partnership with other relevant organizations, would contribute significantly towards effectively and thoroughly eliminating bribery and corruption in international business.

 

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Bibliography

 

1. OECD Publication: “No Longer Business as Usual: Fighting Bribery and Corruption”, Governance, 2000;

a)      The Causes and Consequences of Corruption: Economic Analyses and Lessons Learnt (Jean Cartier-Bresson), Chapter 1;

b)      To Bribe or not to Bribe? (Giorgio Sacerdoti), Chapter 2;

c)      From Ideal to Reality. Making the New Global Standard Stick (Mark Pieth), Chapter 3;

d)      No More Tax Breaks for Bribes (Martine Millet-Einbinder), Chapter 4;

e)      The Promise and the Reality: Monitoring Compliance with the Convention (Enery Quinones), Chapter 7;

f)       Money Laundering and Corruption: Two Sides of the Same Coin (John Carlson), Chpater 9;

g)      Sunshine: the Best Disinfectant (Aileen Beattie and James Barbour), Chapter 10;

h)      Dealing with Corruption in Developing Countries (Irene Hors), Chapter 12.

Summaries of the Publication can be obtained at: 

http://www.oecd.org/daf/nocorruption/nolonger.htm

2. Barbara Crutchfield George, “the 1998 OECD Convention: An Impetus for Worldwide Changes in Attitudes toward Corruption in Business Transactions”, American Business Law Journal Spring, 2000 37 Am. Bus. L.J. 485;

3.       O.Thomas Johnson, “The OECD Convention and the Emergence of an International Anti-Bribery Regime”,Pub.662, 1998 Ed., Matthew Bender & Co., Inc.

4. Jong Bum Kim, “Korean Implementation of the OECD Bribery Convention: Implication of Global Efforts to Fight Corruption” University of California
   UCLA Pacific Basin Law Journal Fall, 1999 / Spring, 2000 17 UCLA PAC;
5. Otto Dietrich, “OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions”, Austrian Review of International & European Law, 3, 1998
6. Philip M. Nichols, “Regulating Transnational Bribery in Times of Globalization and Fragmentation”, 24 Yale Int'l L.J. 257, 274 (1999).
7. Steven R. Salbu, “Are Extraterritorial Restrictions on Bribery a Viable and Desirable International Policy Goal under the Global Conditions of the Late Twentieth Century”, 24 Yale J. Int'l L. 223, 232 (1999).
8. George Moody-Stuart, “Grand Corruption - How Business Bribes Damage Developing Countries” 14 Am. U. Int'l L. Rev. 257 (1997);
9. The United States Department of State Bureau of Economic and Business Affairs, “2000 Report on Battling International Bribery”, available at http://www.state.gov ;
10. OECD Publication: “Countries Corruption: The Issues”  Technical Paper N° 122, 1997.
11. OECD Web site: “OECD Online: Fighting Bribery and Corruption”;
12. OECD Web site: “OECD Anti-Corruption Unit”;
13. OECD Web site: “OECD AnCorR Web”;
14. Transparency International Web site: “Fight Corruption”
15. American Society of International Law Web site: “ASIL Insight: OECD Convention”;
16. Center for International Private Enterprises Web site: “Brief Conference Summaries on OECD Convention”; Interview with Ms. Eleanor Roberts Lewis, the Chief Counsel for International Commerce, US Department of Commerce: “Will the OECD Anti-Bribery Convention be Effective?”.