Business speaks out on preventing corporate crime

foreign-bribery-reportDr. Klaus Moosmayer, Chief Compliance Officer, Siemens AG, and Chair of the BIAC Task Force on Anti-Bribery/Corruption, and Dr. Ulrike Desimoni, Senior Counsel Compliance Legal, Siemens AG. These comments are a contribution to a public consultation on foreign bribery and the liability of legal persons by the OECD Working Group on Bribery.

Business has on many occasions underlined the fundamental importance of compliance, which should be understood not just as adherence to the law and internal company rules, but as a key component of business integrity. It is true that a corporation may in certain cases create an environment that encourages employees, officers, and agents to pay bribes to secure business. Yes, but the corporation can also do the opposite. It can establish an effective compliance system. Effective compliance increases the likelihood of detection of offenses in the company and thus has a positive impact not only on detection and prosecution but also on prevention.

This is because compliance systems have a strong potential for deterrence within the company. Companies should therefore be urged to carry out effective compliance work in order to prevent white-collar crimes, shed light on internally detected misconduct, and disclose it to the authorities. In return, the compliance measures should be taken into consideration when setting the amount of the financial penalty in the event of a violation of the law, even to the extent of waiving a sanction on the company.

When imposing sanctions, the conduct of the company (on which the financial penalty is to be imposed) both before and after the offense must be taken into consideration. This includes the company’s unreserved assistance in clarifying the facts of the case but also the implementation or subsequent introduction of compliance measures, which can be understood as a clear indication of the company management’s commitment to acting in accordance with the law.

The fact that bribes were detected – and that needs to be emphasised – does not necessarily mean the established compliance system failed. In fact, it shows that the compliance system worked: Bribes were detected.

With regard to the 2010 UK Bribery Act, which – like anti-bribery law in some other countries – contains a compliance defence rule, Kenneth Clarke, Secretary of State for Justice highlights: “The objective of the Act is not to bring the full force of the criminal law to bear upon well run commercial organizations that experience an isolated incident of bribery on their behalf. So in order to achieve an appropriate balance, section 7 provides a full defence. This is in recognition of the fact that no bribery prevention regime will be capable of preventing bribery at all times.“

In our view, when it comes to the level of sanctions, different and adequate types of sanctions for legal persons are already in place, either criminal or non-criminal ones. These include fines, confiscation disgorgement, debarment from public procurement and other penalties like dissolution and publication.

While some focus mainly on the liability of companies, the ‘role’ the individual may have must not be disregarded. in In September 2015, the US Department of Justice (DoJ) released  its policy on Individual Accountability for Corporate Wrongdoing (“Yates memorandum”), which correctly signalled a priority of pursuing, punishing and deterring individual (executives, manager) wrongdoers. According to the Yates approach, “the most effective way to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.” The policy and its six key steps to guide prosecutors and civil attorneys at DoJ in conducting and evaluating corporate investigations clearly show the need to focus on individual wrongdoers in addition to companies. Individuals, not only companies are accountable.

Useful links

Public consultation on foreign bribery and the liability of legal persons

OECD Roundtable on Corporate Liability for Foreign Bribery, Paris, 9 December 2016

OECD Anti-Bribery Convention

 

A corporate right to silence and privilege against self-incrimination?

foreign-bribery-reportStijn Lamberigts, PhD researcher at the University of Luxembourg and junior affiliated researcher at the Institute of Criminal Law of the KU Leuven. These comments are a contribution to a public consultation on foreign bribery and the liability of legal persons by the OECD Working Group on Bribery.

Corporations in general, and multinationals in particular, wield substantial financial and socio-economic power. They can and do commit different types of offences through the individuals that work for them. Faced with this reality, the use of corporate criminal liability (CCL) has increased over time. However, CCL raises many theoretical and practical questions. To what extent can corporations be held criminally liable for offences requiring a mens rea element? How should criminal proceedings be conducted against corporations? Who will represent the corporation throughout an investigation or trial? To what extent do corporations benefit from procedural safeguards that were historically conceived for individuals?

These questions have been answered differently around the world. Some systems base CCL on a model of vicarious liability, whereas others favour an anthropomorphic model. Procedural questions, such as those above, on how corporations should be tried and how fair trial rights should apply to corporations, are often overlooked.

Whereas the applicability of some fair trial rights to corporations may be easily accepted, other rights such as the right to silence and the privilege against self-incrimination, are less obvious when corporations are suspected of a criminal offence. These rights were traditionally developed to protect individuals against physical or psychological compulsion. If they are to be applied in the corporate context, several questions arise, such as: which of the corporation’s employees can invoke these rights? All employees? Only middle or top management? Only the corporation’s legal representatives? What would be the impact if corporations could rely on the privilege against self-incrimination and refuse to hand over self-incriminating documents?

The (un)availability of the privilege against self-incrimination and the right to silence can substantially impact defence strategies available to corporations. If they cannot rely on these rights when confronted with a demand for incriminating evidence by prosecuting authorities, the choices available to corporations are limited. Corporations can have good reasons for deciding to cooperate with prosecuting authorities in an effort to obtain the most favourable outcome, for example because they want to avoid the stigma that can come with criminal conviction. Then, they are likely to cooperate, for example by handing over evidence of any wrongdoing. Conversely, a corporation may decide that it does not want to cooperate with the prosecuting authorities. In such cases, the right to silence and the privilege against self-incrimination are particularly relevant.

The question about whether a corporation can rely on the privilege against self-incrimination and the right to silence has been answered differently in different jurisdictions. The variety of approaches can be particularly challenging in the context of cross-border corporate wrongdoing, such as bribery of foreign public officials.

The US approach is very clear: corporations, like other collective entities, cannot benefit from self-incrimination clause of the Fifth Amendment. This Supreme Court doctrine can be traced back to Hale v Henkel handed down at the beginning of the 20th century and the cases that further developed the doctrine. The exclusion of corporations from the scope of these rights was based on several arguments, some of which have lost their appeal over time. The Supreme Court considered that, as the privilege against self-incrimination is a purely personal privilege, it cannot be exercised by corporate employees or agents on the corporation’s behalf as it feared the detrimental impact on the prosecution of cases in a business context. Nevertheless, the US Supreme Court has accepted that corporations can benefit from several other fundamental rights.

The Belgian Court of Cassation’s approach is at the other end of the spectrum. It was confronted with a case in which a financial institution had been required to produce self-incriminating evidence and failure to do so could result in a fine. The Court of Appeal had excluded evidence that was produced under that threat as it considered that the right to silence had been infringed. Its judgment was confirmed by the Court of Cassation on 19 June 2013 (Case P.12.1150.F).

The European Court of Human Rights, which has handed down several cases dealing with the right to silence and the privilege against self-incrimination in the context of natural persons, gives no detailed answer to the aforementioned question.

The Court of Justice of the European Union (CJEU) has ruled on the right to silence and the privilege against self-incrimination of undertakings in the context of competition law. It should be stressed that EU competition law is not considered to be criminal in nature by the CJEU.  Thus, it may be that the CJEU would be more generous when corporations face classic criminal sanctions instead of punitive administrative sanctions. The Court’s position can be summarized as follows: undertakings cannot refuse to hand over incriminating documents when the European Commission issues a Decision based on Council Regulation (EC) 1/2003, nor can they refuse to answer its questions, except where answering a question would entail an admission of an infringement of competition law.

The recently adopted EU Directive 2016/343, which includes a provision on the right to silence and the privilege against self-incrimination, excludes legal persons from its scope. The Preamble to the Directive makes it clear that legal persons can nevertheless rely on existing legislative safeguards and case law.

In conclusion, several uncertainties have been highlighted. Whether and how procedural safeguards are to be applied when a corporation is being prosecuted, is a complex question, which has been answered differently by various countries.  The wide variety of approaches taken in Europe and elsewhere highlight some of the challenges in the field.

Useful links

Public consultation on foreign bribery and the liability of legal persons

OECD Roundtable on Corporate Liability for Foreign Bribery, Paris, 9 December, 2016

OECD Anti-Bribery Convention

Better Plays for Better Lives: Hamlet

I've seen corruption boil and bubble
I’ve seen corruption boil and bubble

Today we publish the next article of a summer series in which Kimberley Botwright of the OECD Public Affairs and Communications Directorate looks at OECD work through a Shakespearean lens.

When the ghost of the old King of Denmark appears at the beginning of Hamlet, Horatio, once doubtful of ghosts, decides, “This bodes some strange eruption to our state.” In a second (private) appearance to young Prince Hamlet, the ghost King reveals an unvoiced injustice; he was murdered by his brother, (Hamlet’s uncle), who has now married the Queen and claimed the royal title.

As the play unfolds we realise that adultery, fratricide, fathers spying on sons, friends spying on friends, bribery, trickery, and murder are the hallmarks of this society. The only major character that does not display some corrupt tendency is Ophelia, Hamlet’s one-time beloved girlfriend. A pure soul in an impure world, society necessarily destroys her; she goes mad and commits suicide. The church is still prepared to bury her though, (despite suicide traditionally preventing burial on hallowed ground), because she’s from a rich family.

Fortunately, today we don’t need to the appearance of ghosts to make us aware of “some foul play.” The OECD’s CleanGovBiz initiative, launched in 2011, is designed to help governments, business and civil society build integrity and combat corruption. This is done through knowledge sharing events as well as a multi-pronged Toolkit, which brings together relevant work on 18 policy areas from across different OECD departments. Users are provided with priority checklists, implementation guidance, good practice examples, as well as access to tools elaborated by international and civil society organisations.

The tricky part about corruption is that it is not always obvious or easy to detect. Hamlet is all too aware of the difference between outward appearance and inward reality; “That one may smile and smile and be a villain.” Polonius, Ophelia’s father, notes, “’Tis too much proved – that with devotion’s visage / And pious action we do sugar o’er / The devil himself.” Sharp detection is needed to identify all sorts of double-dealing. The OECD offers tools such as a Money Laundering Awareness Handbook.

It is inferred early on in the play that upon Hamlet’s decisions “depends the safety and health of this whole state.” Tools to set healthy governance standards as well as secure effective prevention are critical. Examples include OECD Guidelines for Multinational Enterprises, lobbying principles or Public Sector Integrity Reviews, the latter helping to identify and review areas in government vulnerable to misconduct fraud and corruption.

Follow-up tools are needed to ensure robust prosecution and recovery; when Hamlet’s uncle meditates on his devious actions he wonders whether he can repent but keep his stolen assets (the Queen and the title); “May one be pardoned and retain th’offence? / In the corrupt currents of this world / Offence’s gilded hand may shove by justice, / And oft ’tis seen the wicked prize itself / Buys out the law.” Asset recovery is an important part of the corruption limitation, as is criminalising bribery.

Hamlet’s uncle eventually bribes the Prince’s friends to assist in an assassination plot; but Hamlet suspects their treachery long-before, describing Rosencrantz as a sponge, “that soaks up the king’s countenance, his rewards, his authorities.” Current estimates show that over $1 trillion in bribes are paid annually. The OECD’s Anti-Bribery Convention has established legally binding standards to criminalise the bribery of foreign public officials in business transactions.

Hamlet didn’t have a CleanGovBiz Toolkit and as the play progresses he becomes increasingly pessimistic about society’s integrity, telling Polonius, “Ay, sir: to be honest, as this world goes, is to be one man picked out of two thousand.” When Rosencrantz jokes that “the world’s grown honest”, Hamlet replies, “Then doomsday is near.” Despairing of the rot in human nature he asks Ophelia, “Are you honest?” and then cries, “Get thee to a nunnery. Why wouldst thou be a breeder of sinners?” Never mind that he had formerly promised her, “Doubt truth to be a liar / But never doubt I love.” Even Hamlet is inconsistent in the morally corrupt world that encircles him: he murders four people.

Just before the final disastrous scene where the remaining characters all kill each other, Hamlet converses with a gravedigger and asks him how long it takes a body to rot. The reply sums up society, “I’faith, if he be not rotten before he die – as we have many pocky corpses now-a-days…” Corruption corrodes society; leading to suspicion, deception, violence, and death, or “carnal, bloody and unnatural acts.”

If Hamlet’s end doesn’t convince you, modern estimates suggest that corruption causes a 5% to 10% waste of US Medicare and Medicaid annual budgets; a 10% average increase in the cost of doing business; and 20% to 40% of official development assistance to be stolen. Child mortality rates in countries with high levels of corruption are about one third higher than in countries with low corruption, whilst student dropout rates are five times as high.

Corruption also leads to the breakdown of that flighty yet vital thing we call trust in society. As the OECD tells us, we fight corruption because it “corrodes public trust, undermines the rule of law and ultimately delegitimises the state.” The cost of mistrust is high. The OECD Secretary General has stated in his 2013 Strategic Orientations, “Without strong, smart and trusted institutions our efforts to implement and deliver better policies for better lives will be undermined.” No wonder OECD Forum 2013 was all about Jobs Equality and Trust, where a different Prince reminded us; “If you think about it, 100 does not always equal 100. There is a considerable difference between a group of 100 people full of self-confidence, with trust in each other and good basic skills, and a group of 100 people with low self-esteem, a lack of trust and poor basic skills.” Can we (re)build trust?

When integrity crumbles, trust disappears, society spirals downward and “The rest is silence.”

Useful links

OECD work on bribery and corruption

OECD Forum: Rebuilding Trust

OECD Anti-Bribery Convention: Time to Take Real Steps

Click to download the report

This post is contributed by Gillian Dell of Transparency International

As world leaders arrive today at the OECD Ministerial meeting in Paris, they’ll be celebrating the 50th anniversary of the OECD. There’s much to be commended in the OECD’s wide programme of work over the last 50 years. For Transparency International, the NGO leading the fight against corruption,  one of the OECD’s greatest accomplishments is the  landmark 1997 OECD Convention on Bribery of Foreign Public Officials in International Business Transactions, the 2009 Recommendation and the laudable peer review follow-up of the OECD Working Group on Bribery. There has been some progress over the years, notably in the way Germany has joined the battle against foreign bribery. But for most parties to the Convention, there’s a long way to go. At the 50th anniversary Ministerial, a renewed commitment is needed and a concrete programme that increases the scrutiny and spotlight on lagging governments.

One of the key causes of stalled enforcement is a lack of political will. Pressure must be exerted at the highest political level. The key recommendations of the report are:

  • Governments with lagging enforcement should promptly prepare plans for strengthening enforcement and a timetable for such action.
  • The Secretary-General and the Chairman of the Working Group on Bribery should meet with top leaders of governments with lagging enforcement to review plans and timetable for strengthening enforcement.
  • A full review of the status of foreign bribery enforcement should take place at the May 2012 Ministerial.
  • The Working Group on Bribery should publish a list of governments with lagging enforcement. This would make clear that a higher level of due diligence is needed to do business with companies based in these countries.

These recommendations can be found in Transparency International’s seventh annual “Progress Report on Enforcement of the OECD Anti-Bribery Convention,”. The report concludes that a majority of OECD Convention governments are still failing to translate their Convention commitments into action. After seven years of TI reporting on the Convention, this is the first year there is improvement in the numbers of states with active – or even moderate – enforcement. More action is needed, not just noble words.

Of the 38 governments party to the OECD Anti-Bribery Convention only seven states are actively enforcing the Convention, meaning that they are actively pursuing companies and individuals for bribing abroad. Another nine have moderate enforcement—meaning they have brought a couple of major prosecutions– and the vast majority – twenty-one – are doing little or nothing to enforce the Convention in their countries. This is not enough to motivate multinational companies implement serious internal measures to stop foreign bribery. The result: the foreign bribes continue to be paid worldwide, distorting governance and development in developing and developed countries alike.

In a panel today at the OECD Forum conference ahead of the Ministerial, Mark Pieth, the Chair of the OECD Working Group on Bribery said that “Law enforcement is quite a good business for governments” noting the billions in fines and disgorgement that have been recovered in the US by the SEC and Department of Justice in recent years in FCPA cases. But more importantly, as he put it “It’s also a matter of self-respect for countries to enforce their own laws.”

The Anti-Bribery Convention is a collective commitment for good reason—no country can single-handedly tackle the foreign bribery problem and all countries are harmed by it. All countries have an interest in putting an end to the distortions created by foreign bribery. But they all may be tempted to be free riders and fail to enforce the rules while others follow them, thereby benefiting their own companies.

The case for enforcement is strong. First and foremost, it stems the damage of foreign bribery to developing countries. By way of example, one noteworthy target country for multinational bribery is Nigeria.  The 2011 TI Progress Report provides information on numerous investigations and settlements relating to such bribery. It reports on investigations are under way in the US and Germany as well as in Nigeria itself. Nigeria has recently reached settlements with Halliburton, Royal Dutch Shell, Siemens and Snamprogetti Netherlands (a unit of the Italian ENI Spa) and in so doing is following a trail blazed by Lesotho and Costa Rica. These countries are demonstrating that developing countries can and should pursue and impose penalties in domestic cases of multinational bribery. This causes multinational companies to take notice. During an OECD Forum panel this morning on the Anti-Bribery Convention, Massimo Mantovani, General Counsel of Legal Affairs of ENI SpA called for more weight to be given to compliance programmes and complained about the problem of multiple proceedings in multiple jurisdictions. He said that as a result “a company might have double disgorgement of profit, once for the parent and once for the subsidiary”. This sounds like it might really act as a deterrent.

But enforcement against foreign bribery doesn’t only benefit developing countries. It also curbs damage caused by developed countries to one another. For example, the 2011 TI Progress Report informs about investigations into alleged bribery in connection with sales of German submarines to Greece and Portugal a few years ago, valued at about US$ 1.5 billion in each of the two countries. In Czech Republic the authorities are looking into possible improprieties in purchases of defence equipment from Austrian and UK companies. In Finland a defence company’s sale of armoured vehicles to Slovenia is under investigation. The cases show how time after time bribes are paid from large slush funds through large networks of middlemen, shell companies and banking centres that don’t have sufficient oversight.

With only seven parties adequately enforcing the Convention, its progress its future is in serious jeopardy. The classification of states parties is as follows:

Active Enforcement: Seven countries: Denmark, Germany, Italy, Norway, Switzerland, United Kingdom and United States

Moderate Enforcement: Nine countries: Argentina, Belgium, Finland, France, Japan, Korea (South), Netherlands, Spain and Sweden

Little or No Enforcement: 21 countries: Australia, Austria, Brazil, Bulgaria, Canada, Chile, Czech Republic, Estonia, Greece, Hungary, Ireland, Israel, Luxembourg, Mexico, New Zealand, Poland, Portugal, Slovak Republic, Slovenia, South Africa and Turkey

With Russia joining the OECD Working Group on Bribery, that body has to step up its efforts to demonstrate that Convention countries mean business. In an OECD Forum session today on the Convention, Elena Panfilova of TI-Russia made an appeal to the OECD: “In accepting Russia in this club of the chosen, the OECD should be ready to ask uncomfortable questions”. She added “The only thing to restore trust is action not words.” That applies to all the laggard countries not enforcing the Convention.

Useful links

OECD work on anti-bribery

OECD Forum 2011: MO-mentum for battling graft

In the fight against corruption, no one can accuse Mo Ibrahim of not putting his money where his mouth is. After creating one of Africa’s biggest businesses, telecoms firm Cellnet, he sold it in the mid-2000s and set up a foundation  to support good governance in Africa. The foundation is probably best known for its innovative Ibrahim Prize, which awards $5 million over 10 years to a democratically elected African leader who leaves office at the end of his or her constitutional term. 

In a lively speech at the OECD 50th Anniversary Forum, Dr. Ibrahim talked about the fight against graft. “We have wasted 50 years of independence in Africa through misrule and misgovernment,” he said; “enough is enough.” He spoke of his low expectations when setting up the foundation: “We thought the word ‘governance’ was untranslatable in Africa. We were wrong, people understood it immediately and instinctively.”

Dr. Ibrahim praised the OECD’s efforts to fight corruption, but he called on OECD and G20 countries to do more. He criticised Europe and some emerging economies, including China, which he said were not doing enough. “Europe talks but we don’t see any action.” By contrast, he said, the United States was much more active, and he pointed to recent cases against a number of European firms in the US: “Why does it take the Americans to prosecute Europeans?” he asked. 

In response, Mark Pieth, chair of the OECD Working Group on Bribery, who spoke on a panel after Dr. Ibrahim’s address, said some European countries had a decent track record: Germany had 60 anti-corruption cases last year, he pointed out, “but you’re right, some other countries are blatantly absent.”

Dr. Ibrahim also attacked the track record of business: “You want to look for corruption, follow the money,” he said. “The private sector is the source of all corruption.” Based on his own business experience, he said firms were only punishing themselves if they started to pay bribes: “We took a position we will not pay bribes. The result, we made much more money. If you start to pay, you’ll never stop. You pay a minister, then the president, then the president’s wife, then the president’s mistress, and so on.” 

From Russia, Elena Panfilova of the Centre for Anti-Corruption Research and Initiative said it could be difficult to avoid paying bribes, especially in countries where there was a lot of crossover between business and government: “How do you address corruption if people in government are also running biz. What do you do when a son is a running a company, and his mother is a judge?” Speaking on the same day that the OECD is inviting the Russian Federation to join the OECD’s Working Group on Bribery and to accede to the OECD’s Anti-Bribery Convention, she said agreements and legal institutions had to be backed by action: “The only thing that can restore trust is action, not words.” 

On related issues, today sees the release of new OECD guidelines to promote more responsible business conduct. They form part of an update to the OECD’s Guidelines for Multinational Enterprises. Also being released are recommendations designed to combat the illicit trade in minerals – such as “blood diamonds” – that finance armed conflict. 

Useful links

OECD work on bribery and corruption and on corporate governance

Corruption … on the rise?

People around the world believe corruption has worsened since the financial crisis struck, according to a survey from graft-watchers Transparency International, which was released today to mark World Anti-Corruption Day.

Developed regions saw the biggest rise in the numbers of people who felt the problem was now more serious than three years ago: 73% in Western Europe and 67% in North America. According to Huguette Labelle, the head of Transparency International, that’s in part a consequence of the recent economic turmoil: “The fall-out of the financial crises continues to affect people’s opinions of corruption,” she said.

 Transparency International surveyed more than 90,000 in 86 places around the world for the 2010 edition of its Global Corruption Barometer, and the report  offers some fascinating insights into how bribery affects people’s daily lives.

In total about one in four people said they had paid a bribe in the past year, a level unchanged since 2006. In regional terms, the proportion ranged from 56% of people in Sub-Saharan Africa to 5% in both North America and the European Union.  

The police were the institution most associated with bribe-taking, with 29% of people who had contact with them saying they paid up. Next were registry and  permit services (20%) and the judiciary (14%).

Half of respondents felt their government’s actions to fight corruption were ineffective, but – more positively – a big majority (almost seven out of ten) felt the general public could make a difference in the fight against graft.

Separately, a BBC survey suggests corruption is the world’s most-discussed problem. Just over one in five respondents to the survey said they had discussed corruption with family and friends in the past month. The survey also suggests that corruption is regarded as the world’s second most serious problem, just behind extreme poverty and ahead of environmental degradation/climate change and terrorism.

Useful links

 OECD work on bribery and corruption