26 February 2015

OECD Foreign Bribery Report - “An analysis of the crime of bribery of foreign public officials”

Four Sectors dominate the number of sanctioned foreign bribery cases; Extractive/Construction/Transportation and Storage and Information and Communication, according to the OECD  Foreign Bribery Report - “An analysis of the crime of bribery of foreign public officials”  which has recently been launched. It is the first major analysis of countries’ efforts to combat corruption since the Anti-Bribery Convention came into force on 15 February 1999. It looks at 427 cases concluded between 1999 and 1 June 2014.

It asks some important questions: Who was bribing who? Were intermediaries involved? How much was being paid? And how are those who bribe being punished?

This memorandum summarises the key findings of the Report.

Enforcement

  1. Since the Convention came into force, enforcement actions have increased. This increase began in 2003, peaking in 2011, but has declined since.
  2. The average time to conclude foreign bribery cases has increased, peaking in 2013 at an average time of 7.3 years between crime and punishment. This could be due to a number of reasons e.g. increased sophistication of bribery techniques, and increased time to lodge and hear appeals.
  3. The largest percentage (31%) of the cases were detected due to self-reporting, which suggests a willingness of companies to self-report in countries whose legal system permits voluntary disclosure, especially where this leads to mitigated sanctions. It will be interesting to see whether the introduction of Deferred Prosecution Agreements (DPAs) in the UK will increase the number of self-reports. 13% of cases were detected as a result of law enforcement (such as police and customs authorities), and 5% as a result of media coverage/investigative journalism. A small (2%) number of cases arose from third party whistle-blowers reporting directly to law enforcement authorities (although some of the self-reporting also derived from whistle-blowers).
  4. Where cases had been detected because of companies self-reporting, 31% of the companies became aware of foreign bribery though an internal audit, 17% through a whistle-blower and 2% through employees who had received foreign bribery training by the company.

Punishment

  1. The most common method of punishment is through a civil/criminal fine. Other methods of enforcement, in order of frequency, are: confiscation, imprisonment, compliance programmes, injunctions, suspended prison sentences, compensation, debarment and dissolution.  The highest amount in combined monetary sanctions imposed in a single case totals approximately EUR 1.8 billion. The majority of sanctions (69%) have been imposed through settlement procedures.
  2. The highest number of foreign bribery schemes (128) were sanctioned in the United States. Six were sanctioned in the UK. With the exception of Bulgaria, all countries to have concluded foreign bribery cases are OECD countries, whereas only 8 are members of the G20. Clearly, there is significant scope for G20 countries to do more to effectively investigate, prosecute and sanction bribery of foreign public officials.

Who is bribing?

  1. In 60% of cases, the sanctioned company had over 250 employees. Only 4% of sanctioned companies were SMEs.
  2. Almost two-thirds of foreign bribery cases occurred in four sectors: the Extractive (19%), Construction (15%), Transportation and Storage (15%) and Information and Communication (10%) sectors.
  3. Senior management was involved in over 50% of cases.

Who is receiving the bribe and for what purpose?

  1. The largest category of foreign public officials who were bribed is that of employees of State Owned Enterprises (SOE’s). The role of the SOE official who received the bribe ranged from CEO/President level to lower level employees, and in some cases the official had a dual role.
  2. The majority (95%) of bribes were paid to officials in five categories (SOE officials – 80%, Heads of State - 7%, Ministers - 4%, Defence Officials – 3%, and Customs Officials -1%) and in the majority of the cases (57%), bribes were paid to obtain public procurement contracts.

How and where are bribes being paid?

  1. Three out of four of the cases involved foreign intermediaries. In the 304 cases in which intermediaries were used, an “Agent” was used in 41%, and a “Corporate vehicle” was used in 35%.
  2. Two thirds of bribes were paid to officials in countries in the medium/high/very high categories on the UN Human Development Index (“HDI”).

Cost of bribes

  1. For the majority of the cases examined, the amount of bribes promised, offered or given was up to 5% of the transaction value. Bribes in the water supply and education sectors amounted to 2% of the transaction value, compared with the extractive and wholesale and retail sectors, where bribes amounted to 21% and 19% of the transaction value, respectively. 

Conclusion

Whilst the scope of the Report was limited, it can nevertheless be used to draw preliminary observations regarding the foreign bribery cases that have been concluded since the Convention came into force;

  1. In the foreign bribery cases concluded to date, corruption is not restricted to developing countries. Almost one in two concluded foreign bribery cases involved officials form countries with high to very high HDI rankings. Bribes are generally paid to win contracts from SOEs in advanced economies, rather than in the developing world, and most bribe payers and takers are from wealthy countries.
  2. There is a need to strengthen reporting mechanisms within authorities so that a greater number of cases are detected. The OECD states that whistle-blowing protection mechanisms should be implemented and strengthened to increase detection of bribery and corruption. This is a significant issue raised in the UK Anti-Corruption Plan which says that further consideration should be given to incentivising and protecting whistle-blowers.
  3. The majority of cases concluded after the Convention came into force have been settled. As the OECD suggests, it may be of use for  settlements to be made public e.g. the facts of the case, the persons sanctioned and the terms of the sanctions.
  4. Probably, unsurprisingly, a large number of intermediaries have been involved in the bribery of foreign officials. This conclusion has also been reached by the FCA (or FSA – as it was at the time) in its thematic review of Commercial Insurance Broking. It demonstrates that effective due diligence and oversight of corporate compliance programmes is still sadly lacking in certain commercial arrangements.
  5. The high number of cases (57%) in which bribes were paid in the context of public procurement reinforces the belief that, in certain cases, there is still a lack of integrity, transparency and accountability in the procurement process.
  6. The OECD accepts the report/data is limited and states that it should be widened in its scope, and published more regularly, in order to build a more comprehensive and in-depth analysis of foreign bribery.

We are currently assisting several clients on implementing risk assessments and introducing systems and controls to try to address the issues identified by the OECD. Should you require any assistance please do not hesitate to contact us.

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