mandate without means strengthening the oecd …€¦ · mandate without means strengthening the...

FOR PRESENTATION ONLY. PLEASE CONSULT AUTHOR BEFORE QUOTATION.

MANDATE WITHOUT MEANS

Strengthening the OECD Anti-Bribery Convention

Prof Emil Bolongaita, Carnegie Mellon University, Australia

[email protected]

While the number of enforcement actions against foreign bribery has grown in recent years, this growth has mainly been due to the activities of four signatories, chiefly the U.S. and Germany, and to a lesser extent Switzerland and U.K. More than half of the signatories have not secured a single conviction. In addition, almost half of the signatories have not even prosecuted a single case. A fifth or twenty percent of the signatories have not even conducted any investigation at all. These numbers of poor enforcement performance should be alarming because nineteen Convention signatories are among the top countries whose firms have been considered in the Briber Payers Index of Transparency International as among most likely to engage in corruption in doing business overseas. This paper makes a preliminary analysis of the factors that could explain why most signatories are performing poorly in enforcement. From an economic perspective, these poor performers are “free riders”, because they can enjoy non-excludable benefits of other countries’ enforcement and avoid shouldering costs of enforcement in the absence of a compelling mechanism to constrain or sanction them. There are also legal, political and corporate factors that contribute to blunting the Convention’s implementation. No less important is the organisational factor: the capacity and capabilities of law enforcement agencies in these poor performing countries relative to the hyper-complex challenges of investigation and prosecuting well-resourced corporate criminals. Analysis of select signatories indicated that the agencies tasked to control foreign bribery are severely under-resourced, under-staffed, and ill-equipped.

FOR PRESENTATION ONLY. PLEASE CONSULT AUTHOR BEFORE QUOTATION.

The opinions expressed and arguments employed herein are solely those of the authors and do not necessarily reflect the official views of the OECD or of its member countries as well as that of Carnegie Mellon University. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

This paper was submitted as part of a competitive call for papers on integrity, anti-corruption and inclusive growth in the context of the 2017 OECD Global Anti-Corruption & Integrity Forum.

The author acknowledges the support of Carnegie Mellon University for the research conducted for this paper. Brenda Kamangara, a graduate of the university’s Master of Science in Public Policy and Management, provided research assistance.

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1. Introduction

The OECD’s Anti-Bribery Convention counts all thirty-five OECD member countries as

signatories as well as six non-OECD member countries. Entered into force in February 1999,

the Convention calls on signatories to adopt legally binding standards that criminalise and

combat the bribery of foreign public officials.

The Convention is a global public good. By criminalising the bribery of foreign officials

by nationals of signatory states, the Convention seeks to control the “supply side” of

corruption. Because its signatories are among the largest economies of the world that

constitute over two thirds of the global economy, the scope of its impact presents great

potential (Figure 1). The signatories are home to multi-national corporations whose products

and services span virtually all industries. Their economies account for about two-thirds of the

world’s exports and almost ninety percent of total foreign direct investment outflows. If their

enterprises and nationals were controlled from bribing foreign officials, it would amount to a

significant impact in reducing international corruption.

Figure 1: OECD Anti-Bribery Convention Signatories Share of Global GDP 2015

OECD Anti‐Corruption Signatories (OECD member states)

62%

OECD Anti‐Corruption Signatories (Non OECD member states)

6%

Non signatories to the OECD Anti‐Bribery convention

32%

Source: World Development Indicators.

The Convention is approaching the 20th anniversary of its entry into force. When it was

launched, hopes were raised in 1999 for the beginning of a new era in the conduct of

international business. The Convention would not just level the playing field in global

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commerce and procurement. It would counter the massive if incalculable waste, inefficiencies,

distortions and maldevelopment of international corruption.

The implementation of the Convention can be viewed as a two-stage process. The first

phase is getting signatories to have robust laws and regulations against foreign bribery. The

second phase deals with signatories implementing these laws against foreign bribery.

In the first phase, the OECD worked with its member states in drafting, passing or

amending national laws against foreign bribery that would be consonant with the terms of the

Convention. In this regard, the OECD and its member states achieved remarkable success.

Notably, they also succeeded in inviting six non-OECD member states to sign up to the

Convention.

While there has been considerable success in the first phase, there has been notable

failures and setbacks in the second phase. As will be discussed below, the continuing record

of poor enforcement since 1999 demonstrate that the benefits articulated at the Convention’s

creation are significantly unrealised.

While the 2014 OECD Foreign Bribery Report found that “enforcement of anti-bribery

laws has drastically increased since the entry into force of the Convention”,1 the 2015

Exporting Corruption Report of Transparency International showed that only four countries

can be counted as engaged in Active Enforcement, while the rest are either Moderate, Limited,

or Little or No enforcement countries.2

Research Questions

The research questions posed by this paper arise from incongruities between the intent

and implementation of the Convention. Why is there a significant enforcement deficit of foreign

bribery laws among Convention signatories? What is the extent of variance in performance

among Convention signatories? Which countries lead and lag in enforcement? What factors

could explain their differences in performance? What measures could be considered to

improve enforcement across all Convention signatories?

Methodology

This study is based on a review of OECD publications and its monitoring reports of

signatories’ implementation of the convention, Transparency International’s annual progress

1 Organisation for Economic Cooperation and Development, OECD Foreign Bribery Report: An Analysis of the Crime of Bribery of Foreign Public Officials, p.7, italics supplied. 2 Transparency International, Exporting Corruption: Progress Report 2015 - Assessing Enforcement of the OECD Convention on Combating Foreign Bribery.

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reports on the convention, various reports of national government bodies of Convention

signatories, news reports, and various other documents.

Background: The Bribe Payers and Corruption Perceptions Indices

The propensity of firms from advanced and large economies to engage in foreign

bribery has been highlighted by Transparency International’s Bribe Payers Index. This index

ranks twenty-eight of the world’s biggest economies with regard to perceptions that their firms

are likely to engage in bribery when doing business overseas. The last BPI was published in

2011 (previous survey years were 2008, 2006, 2002, and 1999). The index is based on

surveys of executives in 30 countries for their perceptions of the likelihood that companies in

the countries where they operate will engage in bribery when doing business in these

executives’ own country.

Of the twenty-eight countries in the Bribe Payers Index, nineteen (or 67%) are

signatories of the OECD Anti-Bribery Convention (Figure 2). On one level, this is not

surprising. The members of the OECD are advanced economies with extensive multinational

enterprises operating in countries with mixed and messy governance environments. However,

on another level, it is surprising that these OECD convention signatories remained prominent

throughout the various years of the Bribe Payers Index because many are considered among

the less corrupt countries in the world. Their scores and rankings in Transparency

International’s Corruption Perceptions Index consistently show them as such (Figure 3).

Figure 2: OECD Anti-Bribery Convention Signatories listed and ranked in the 2011 Bribe Payers Index

0

5

10

15

20

25

30

BPI country rank & score

Note: Country in BOLD are signatories of the OECD Anti‐Bribery Convention

Source: Transparency International.

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Figure 3: Ranking of OECD Signatories in the 2016 Bribe Payers Index and their Scores in the 2016 TI Country Perceptions Index

0

10

20

30

40

50

60

70

80

90

100

0

5

10

15

20

25

30

2016

CPI Cou

ntry Score

2011

BPI cou

ntry ran

k

Country

2011 BPI Rank 2016 CPI Score


Prior to the OECD Convention, there were few legal impediments for OECD member

states to engage in foreign bribery as a tool for doing business overseas (except for U.S.

companies and foreign firms that could be subject to the 1977 U.S. Foreign Corrupt Practices

Act or FCPA). In fact, companies were incentivised to engage in foreign bribery because

informal payments to public officials (recorded in different guises) were legal tax-deductible

expenses.

After the passage of the Convention in 1999, the international legal landscape of

foreign bribery changed. Building on the FCPA, the Convention’s prohibition and penalties for

foreign bribery were being reflected in implementing legislation of signatories. As the first

phase of implementation, this was a considerable achievement.

The second phase of enforcement, which is the essence of the rule of law, presents a

different challenge. Because if laws are not enforced, they become irrelevant. If selectively

enforced, they become part of the problem because they increase uncertainty and costs. Laws

are, of course, not self-implementing. Even laws that have built-in incentives for compliance

require monitoring and the appropriate regulatory framework and agencies to provide for

incentives and disincentives as needed. Moreover, some laws are harder than others to

implement, especially when the laws seek to change behaviour that are highly profitable. This

is certainly the case with anti-corruption laws as they impinge on livelihoods and, in many

foreign bribery cases, small fortunes.

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In 2014, the OECD published its Foreign Bribery Report which examined the

enforcement outcomes of the Convention. The authors found that the data “demonstrates that

enforcement of anti-bribery laws has drastically increased since the entry into force of the

Convention” (Figure 4). The report reviewed a total 427 individuals and entities that were

subjected to enforcement actions. The cases of successful prosecutions involved seventeen

of the forty-one signatories of the Convention.

Figure 4: Enforcement Actions against Foreign Bribery OECD Anti-Bribery Convention Signatories 1999-2013

In the aggregate, the increase of enforcement actions is encouraging. If the unit of

analysis is solely enforcement action (in the form of civil and criminal penalties, or fines and

prison terms applied), then the trend is encouraging. However, if the unit of analysis is the

performance of country signatories in enforcing anti-bribery laws, then the record, as

discussed below, is alarming.

The aggregate increase in enforcement actions analysed by the Foreign Bribery

Report is mainly due to the activities of the U.S. and Germany, and to a lesser extent,

Switzerland and the U.K. Most of the Convention’s signatories, ninety percent, have little to

show in terms of securing convictions or applying sanctions against their nationals or

corporations reported to have committed foreign bribery. Most signatories have undertaken

investigations but many have not progressed to prosecution. If the concept of activity is not

conflated with accomplishment, then these signatories continue to be part of the problem

rather than of the solution to pernicious and pervasive foreign bribery around the world.

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Implementation Assessment by Transparency International

Transparency International (TI) has been conducting annually an independent review

of the implementation of the Convention. TI classifies the enforcement performance of

signatories into four kinds, namely Active, Moderate, Limited, and Little or None.3

To be in the Active enforcement category, a country must show that it “initiates many

investigations into foreign bribery offences, these investigations reach the courts, the

authorities press charges, and the courts convict individuals and/or companies both in ordinary

cases and in major cases in which bribers are convicted and receive substantial sanctions”.4

To be classified as Moderate and Limited enforcers, a country’s performance must “indicate

stages of progress, but are considered insufficient deterrence”.5 A country must at least have

a “major case commenced during the past four years.”6 Failing to have at least a major case

commenced puts a country in the Little or None enforcement category.

The latest TI report reviewed 39 convention signatories; Latvia and Iceland were

excluded as their share in world exports were considered too low. Plus, Latvia had acceded

to the convention only in 2014.

The TI report finds only four countries as Active enforcers, namely the U.S., Germany,

Switzerland, and the U.K.7 Six countries are considered Moderate, namely Australia, Austria,

Canada, Norway, Finland, and Italy.8 Nine countries are considered Limited enforcers: France,

Greece, Hungary, New Zealand, Netherlands, Portugal, South Africa, South Korea, and

Sweden.9 In the Little or No Enforcement are half of the Convention signatories: Argentina,

3 The report’s assessment methodology utilises a points system for a country’s enforcement activities that is calculated in relation to that country’s share of world exports. A country would score one point for commencing investigations, two points for prosecuting or filing cases in court, four points for filing major cases or completing cases that result in sanctions, and ten points for concluding major cases that result in substantial sanctions. For the report, what constitutes a major case is the occurrence of bribery by major companies (including state-owned enterprises) involving senior foreign officials, the size of the contract and alleged bribes, and the nature of the case itself (as to whether it will set a major precedent and deterring effect). Ibid, p.15. 4 Ibid, p.11. 5 Ibid, p. 11. 6 Ibid, p.12. 7 Of these four countries, it is the US that is most active, with 74 major convictions for the four years covered by the report, followed by the UK with 22 major cases, Germany with 13 major cases, and Switzerland with 7. 8 Of these six countries, Canada had 11 major convictions, followed by Italy with 7 major cases, Austria with 4, Norway and Finland with 3 each, and, Australia, with 1. 9 Of these nine countries, there are a few that scored some major convictions, namely France with 4, Netherlands and Sweden with 2 each, and South Korea with 1. Based on the TI methodology, these four countries, although they achieved some major convictions, apparently did not qualify as Active enforcers because they were pursuing fewer investigations than the Moderate countries. (Curiously, France’s inclusion in this Limited category and not in the Moderate category is worth noting: during the period in review, France conducted 28 investigations and achieved 4 major convictions. Australia, which conducted 26 investigations and 1 major conviction, is classified as Moderate.)

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Belgium, Brazil, Bulgaria, Czech Republic, Chile, Colombia, Denmark, Estonia, Ireland, Israel,

Japan, Luxembourg, Mexico, Poland, Russia, Slovak Republic, Slovenia, Spain, and Turkey.10

Assessing the TI Assessment Framework

If a robust results-oriented approach was taken to assess the implementation

categories of the TI annual reviews, its framework could be considered charitable or over-

generous. To be classified as an Active enforcer, a country must show only “a major case

being concluded in the past four years”.11 To be fair, the length of time to conclude a foreign

bribery case can be considerable because these are complex cases that require investigations

across two or more jurisdictions. However, completing just one major case in four years would

seem to be a soft definition of Active. OECD member states are not lacking for resources to

adequately staff and equip their law enforcement agencies so that justice is not that delayed.

In fact, the longer a case drags, the more likely it is not going to be prosecuted effectively

because suspects will have more time to cover their tracks, hide their assets, silence

witnesses, and destroy evidence.

A similar observation of softness may be said for the Moderate category: the TI

framework requires only that a country must have at least initiated prosecution of 1 major case

in the past 4 years.

In this regard, the TI framework could be criticised as undemanding of the persistently

poor performance of most Convention signatories in enforcing their foreign bribery laws. As

the dismal data below demonstrate, the last thing that Convention signatories need is a mere

slap on the wrist. What is needed, metaphorically speaking, is a slap on the face for persistent

poor performance that makes foreign bribery still a low-risk and high-reward activity for corrupt

corporations and individuals.

Convictions for Foreign Bribery

Convictions in this paper are defined broadly to include court judgments, settlements,

and resolution of cases that result in criminal and/or civil penalties. By this definition,

convictions are the penultimate outcome of enforcement. As an indicator, convictions signify

10 In this category, two countries have scored 1 major conviction each, namely Brazil and Japan. (As above, curiously Brazil is placed in this bottom category and not in the Limited category even though it achieved 1 major conviction while pursuing 8 investigations. This record appears to be better than Netherlands and Portugal, which similarly pursued 8 investigation with no major convictions and yet were classed in the higher category. But considering the recent anti-corruption drive in Brazil – which has produced anti-corruption investigations and indictments in other Latin American countries – the country will likely find itself positively reviewed in the next TI assessment. 11 Ibid, p.12.

8

that other anti-corruption activities in the enforcement cycle -- such as monitoring, detection,

investigation, and prosecution -- are working.

Sanctions, especially if swift and severe in appropriate application, are the strongest

signals that crime does not pay. Hence, convictions and sanctions for violations of foreign

bribery laws are what gives credibility to the laws. No convictions, no credibility; no credibility,

no deterrence.

Based on data from TI’s annual progress reports, only two countries (U.S. and

Germany), and to a lesser extent two others (Switzerland and U.K.), have been responsible

for most convictions for violations of foreign bribery laws among Convention signatories.

These four countries, constituting 10% of signatories, delivered 84% of total convictions. Of

the total convictions, more than half (52%) came from U.S. (Figure 5).12 Twenty-four

signatories – 58% – have not secured a single conviction (Table 1). After more than ten years,

twenty-one countries remain conviction-less, despite having carried out prosecutions and

investigations over several years.

Figure 5: Total Convictions for Foreign Bribery OECD Anti-Bribery Convention Signatories 2009 – 2014

0 2 0 1 0 03

0 0 0 0 0 15

86

0 1 0 0 06

2 0 0 03

03 1 0 0 0 0 0

50 1

22

0

20

182

0

20

40

60

80

100

120

140

160

180

200

Number of Convictions

Country


12 The data for convictions come from TI’s Progress Reports, combining data in the categories of Major Cases Concluded with Substantial Sanctions and Cases Concluded with Sanctions. See Exporting Corruption, op.cit., pp. 12-13.

9

Table 1: OECD Anti-Bribery Convention Signatories That Have No Convictions for Foreign Bribery as of 2015

(listed according to length of inactive years, longest to shortest)

Country

Deposit of instrument of acceptance/

approval/ ratification/ accession

Entry into force of the Convention

Entry into force of

implementing legislation

Total Years without

Convictions Since Entry into

Force of Implementing

Legislation

Austria 20-May-99 19-Jul-99 1-Oct-98 17 Greece 5-Feb-99 15-Feb-99 1-Dec-98 17 Iceland 17-Aug-98 15-Feb-99 30-Dec-98 17 Israel 11-Mar-09 10-May-09 21-Jul-08 17 Argentina 8-Feb-01 9-Apr-01 10-Nov-99 16 Bulgaria 22-Dec-98 15-Feb-99 29-Jan-99 16 Czech Republic 21-Jan-00 21-Mar-00 9-Jun-99 16 Mexico 27-May-99 26-Jul-99 18-May-99 16 Slovak Republic 24-Sep-99 23-Nov-99 1-Nov-99 16 Slovenia 6-Sep-01 5-Nov-01 23-Jan-99 16 Denmark 5-Sep-00 4-Nov-00 1-May-00 15 Spain 14-Jan-00 14-Mar-00 2-Feb-00 15 Ireland 22-Sep-03 21-Nov-03 26-Nov-01 14 Luxembourg 21-Mar-01 20-May-01 11-Feb-01 14 New Zealand 25-Jun-01 24-Aug-01 3-May-01 14 Portugal 23-Nov-00 22-Jan-01 9-Jun-01 14 Brazil 24-Aug-00 23-Oct-00 11-Jun-02 13 Chile 18-Apr-01 17-Jun-01 8-Oct-02 13 Turkey 26-Jul-00 24-Sep-00 11-Jan-03 12 Estonia 14-Dec-04 12-Feb-05 1-Jul-04 11 South Africa 19-Jun-07 18-Aug-07 27-Apr-04 11 Russian Federation 17-Feb-12 17-Apr-12 16-May-11 4 Colombia 20-Nov-12 19-Jan-13 14-Nov-12 3 Latvia 31-Mar-14 30-May-14 21-Mar-14 1

Source: Transparency International, OECD.

Among the five worst-performing Convention signatories in the Bribe Payers Index

belong to the set of signatories that have not been able to secure a single conviction to date

for foreign bribery, namely Russia, Mexico, Argentina, Turkey, South Africa. Except for the

four Active Enforcement countries, the rest of the nineteen Convention signatories listed in the

Bribe Papers Index display poor record of enforcement. There would seem to be an inverse

relationship between a country’s rank in the BPI and its law enforcement performance in terms

of securing convictions (Figure 6).

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Figure 6: Total Convictions of OECD Anti-Bribery Convention Signatories (2009-2014)

in relation to their ranking in the Bribe Payers Index 2011

0

20

40

60

80

100

120

140

160

180

200

0

5

10

15

20

25

30

Total Convictions

BPI country score and ran

k

OECD Anti‐Bribery Convention Signatories

BPI 2011 results Rank Total Convictions


Prosecutions of Foreign Bribery

Next to convictions, prosecution is the most credible enforcement measure.

Prosecutions indicate that the investigation of cases have produced sufficient evidence to

convict. The benchmark that prosecutors aim to reach before deciding to prosecute is to have

marshalled evidence that proves guilt beyond reasonable doubt.

Based on data from TI’s progress reports, seven countries, representing 17% of

signatories, delivered 84% of prosecutions: Germany, U.S., Italy, U.K., France, Canada and

South Korea (Figure 7). Nineteen countries – 46% of signatories – have not prosecuted a

single case (Table 2). Sixteen signatories have not made any prosecutions even after ten or

more years.

11

Figure 7: Total Prosecutions for Foreign Bribery OECD Anti-Bribery Convention Signatories 2009 – 2014

12

4

1 1 1

9

0 0 01

0

5

10

39

01

0 0 0

29

2

01

0 0 0

21

0 0 0 0 0

7

0

3 3

0

23

37

0

5

10

15

20

25

30

35

40

45

Argentina

Australia

Austria

Belgium

Brazil

Bulgaria

Can

ada

Chile

Colombia

Czech Rep

ublic

Den

mark

Estonia

Finland

France

German

y

Greece

Hungary

Iceland

Ireland

Israel

Italy

Japan

Latvia

Luxembou

rg

Mexico

Netherlands

New

Zealan

d

Norw

ay

Poland

Portugal

Russia

Slovak Rep

ublic

Slovenia

South Africa

South Korea

Spain

Swed

en

Switzerlan

d

Turkey UK

USA

Total C

onvictions

Country

Total Cases Commenced


Table 2: OECD Anti-Bribery Convention Signatories

That Have No Prosecutions for Foreign Bribery as of 2015 (listed according to length of inactive years, longest to shortest)

Country




Entry into force of implementing

legislation

Total Years without

Prosecutions Since Entry

into Force of Implementing

Legislation

Greece 5-Feb-99 15-Feb-99 1-Dec-98 17

Israel 11-Mar-09 10-May-09 21-Jul-08 17

Czech Republic 21-Jan-00 21-Mar-00 9-Jun-99 16

Iceland 17-Aug-98 15-Feb-99 30-Dec-98 16

Mexico 27-May-99 26-Jul-99 18-May-99 16

Slovak Republic 24-Sep-99 23-Nov-99 1-Nov-99 16

Slovenia 6-Sep-01 5-Nov-01 23-Jan-99 16

Spain 14-Jan-00 14-Mar-00 2-Feb-00 15

Ireland 22-Sep-03 21-Nov-03 26-Nov-01 14

Netherlands 12-Jan-01 13-Mar-01 1-Feb-01 14

New Zealand 25-Jun-01 24-Aug-01 3-May-01 14

Portugal 23-Nov-00 22-Jan-01 9-Jun-01 14

12

Chile 18-Apr-01 17-Jun-01 8-Oct-02 13

Turkey 26-Jul-00 24-Sep-00 11-Jan-03 12

Estonia 14-Dec-04 12-Feb-05 1-Jul-04 11

South Africa 19-Jun-07 18-Aug-07 27-Apr-04 11

Russian Federation 17-Feb-12 17-Apr-12 16-May-11 4

Colombia 20-Nov-12 19-Jan-13 14-Nov-12 3

Latvia 31-Mar-14 30-May-14 21-Mar-14 1 Source: Transparency International, OECD.

Investigations of Foreign Bribery

Investigation is perhaps the most critical phase in the anti-corruption process because

this is what gathers the evidence necessary to prosecute and convict. No prosecution can

prosper with poor investigation. Not surprisingly, the few countries that are active prosecutors

of foreign bribery are also active investigators (Figure 8). However, many countries that

conduct investigations are not able to follow through with prosecutions.

Only three countries, namely US, Switzerland and Germany, were notably active

investigators, producing in combination 57% majority of total investigations from 2009 to 2014.

A fifth of the signatories (nine countries) have not conducted any investigation of foreign

bribery (Table 3), with six inactive even after ten years.

Figure 8: Total investigations of Foreign Bribery OECD Anti-Bribery Convention Signatories 2009 – 2014

1

33

16

2

8

0

14

30

3 30

2

35

101

62

0 0 1

19

30

20

11

3 40

9

0 1 2

25

35

7

106

8

21

128

0

20

40

60

80

100

120

140

Total Investigations

Country


13

Table 3: OECD Anti-Bribery Convention Signatories That Have No Investigations for Foreign Bribery as of 2015

(listed according to length of inactive years, longest to shortest)

Country




Entry into force of implementing

legislation

Total Years without

Investigations Since Entry into

Force of Implementing

Legislation

Iceland 17-Aug-98 15-Feb-99 30-Dec-98 17

Bulgaria 22-Dec-98 15-Feb-99 29-Jan-99 16

Mexico 27-May-99 26-Jul-99 18-May-99 16

Ireland 22-Sep-03 21-Nov-03 26-Nov-01 14

Poland 8-Sep-00 7-Nov-00 4-Feb-01 14

Estonia 14-Dec-04 12-Feb-05 1-Jul-04 11

Russian Federation 17-Feb-12 17-Apr-12 16-May-11 4

Colombia 20-Nov-12 19-Jan-13 14-Nov-12 3

Latvia 31-Mar-14 30-May-14 21-Mar-14 1 Source: Transparency International, OECD.

Investigations with Limited Prosecution

Notably, there are several signatories that have been conducting investigations for

several years but have yet to prosecute suspected national firms and citizens. Among the

countries that stand out are: Switzerland (Investigations: 106, Prosecutions: 3), France

(Investigations 35, Prosecutions: 10), Australia (Investigations: 33, Prosecutions: 2), South

Africa (Investigations: 25, Prosecutions: 0), Netherlands (Investigations: 11, Prosecutions: 0),

Portugal (Investigations 9, Prosecutions: 0) (see Figure 9).

14

Figure 9: Total Prosecutions and Investigations for Foreign Bribery OECD Anti-Bribery Signatories 2009-2014

0

20

40

60

80

100

120

140

0

5

10

15

20

25

30

35

40

45

German

y

USA

Italy UK

Fran

ce

Cana

da

South Ko

rea

Finlan

d

Austria

Switzerland

Swed

en

Australia

Norway

Japa

n

Brazil

Den

mark

Belgium

Hun

gary

Luxembo

urg

Arge

ntina

Bulgaria

Poland

South Afric

a

Nethe

rland

s

Portug

al

Turkey

Greece

Spain

Chile

Czech Re

public

New

Zea

land

Sloven

ia

Israel

Slovak Rep

ublic

Colombia

Estonia

Icelan

d

Ireland

Latvia

Mexico

Russia

TOTA

L INVE

STIGAT

ONS

TOTA

L PRO

SECU

TIONS

COUNTRY

Total Prosecutions Total Investigations


Switzerland, at the outset, is the most noticeable outlier above. Its high numbers of

investigations may be due in great part to the fact that it is the financial centre historically and

most heavily used by corrupt corporations and individuals (see Figure 10). Countries such as

France Australia, and South Africa present a no less serious conundrum – the wide gulf

between investigations and prosecutions and convictions.

Figure 10: Total Convictions and Investigations for Foreign Bribery OECD Anti-Bribery Signatories 2009-2014

0

20

40

60

80

100

120

140

0

20

40

60

80

100

120

140

160

180

200

USA

Switzerland

German

y

Fran

ce

Australia

South Afric

a

UK

Italy

Austria

Cana

da

Netherland

s

Portug

al

Brazil

Turkey

Swed

en

Greece

Spain

Norway

Chile

Czech Re

public

Den

mark

Japa

n

New

Zea

land

South Ko

rea

Belgium

Finlan

d

Hun

gary

Luxembo

urg

Sloven

ia

Arge

ntina

Israel

Slovak Rep

ublic

Bulgaria

Colombia

Estonia

Icelan

d

Ireland

Latvia

Mexico

Poland

Russia

TOTA

L INVE

STIGAT

ONS

TOTA

L CO

NVICT

IONS

COUNTRY

Total Convictions Total Investigations


15

Explaining Chronic Enforcement Disorder

The perceptions about a country’s integrity and cleanliness of its institutions, as

conducted annually by TI for its CPI, are not necessarily consonant with the behaviour of those

very same institutions to enforce the law against its firms and citizens who engage in corrupt

activities abroad. In fact, there is some disconnect between corruption perceptions of a country

and its actual record of enforcing anti-corruption laws. This can be gleaned by comparing a

country’s enforcement of foreign bribery laws (in terms of convictions) and its scores in the

CPI (Figure 11). The record shows that most of the signatories of the Convention score sixty

and above in the CPI (the index is between 0 to 100 where 100 is considered least corrupt

and 0 the most). However, the reality is that in terms of foreign bribery, almost all the

signatories, have not been able to extend their reputations of controlling corruption

domestically to controlling corruption internationally.

Figure 11: OECD Anti-Bribery Convention Signatories Scores in the Corruption Perceptions Index and their Enforcement of Anti-Bribery Laws (Convictions)

0

20

40

60

80

100

120

140

160

180

200

2016 Transparency International CPI Country score Total Convictions


There are several factors that constrain the OECD Anti-Bribery Convention from being

implemented effectively by most if not all of its signatories. The next section discusses these

factors in turn.

A Legacy Issue: The FCPA

The OECD Convention owes much of its existence to a U.S. precedent: The Foreign

Corrupt Practices Act (FCPA) that was passed into law in 1977. The U.S. Congress legislated

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the FCPA as an amendment to the Securities and Exchange Act of 1934 following the

Watergate scandal. During its Watergate-related investigations, the U.S. Securities and

Exchange Commission (SEC) had found that U.S. corporations had been making

“questionable payments” to foreign officials.13 In proscribing U.S. corporations from foreign

bribery and in defining jurisdiction to include entities that use the U.S. financial system or

commit the proscribed acts in U.S. territory, the FCPA became the first global public good

against international corruption.

Not surprisingly, the passage of the FCPA became a source of concern for U.S.

companies in terms of their ability to compete in international procurement against other

multinationals whose countries did not criminalise foreign bribery. Hence, the U.S. worked to

internationalise the strictures of the FCPA through the OECD to “level the global playing field”

for U.S. companies. At the signing of the U.S. International Anti-Bribery and Fair Competition

Act of 1998 as implementing legislation in accord with the OECD Convention, U.S. President

Bill Clinton noted that the law would counter estimated annual losses of US$30 billion of U.S.

companies in international business.14

The Free Rider Problem

The estimated annual losses of U.S. companies alluded to by President Clinton is

conversely the estimated annual benefits of other OECD MNCs competing against U.S. firms.

In this regard, these non-U.S. firms were effectively incentivised by the FCPA to bribe foreign

officials to win contracts as their own laws did not hinder them from doing so. Moreover, such

informal payments could be recorded as business costs by these firms. Despite the OECD

Convention (some may even say because of it from a perverse standpoint), the pressure to

maintain these unfair advantages have not diminished. This is because non-enforcing

governments and their MNCs can benefit from the enforcement actions of U.S. and others. If

the U.S. is effective in enforcement, non-enforcing countries give their multinationals a

competitive edge. And unless these firms have conducted their transactions through the U.S.

financial system or in U.S. territory, the U.S. cannot prevent these firms from unfairly benefiting

from its enforcement actions. In effect, enforcement is a non-excludable good.

However, more than just firms benefitting from other’s enforcement, non-enforcing

governments save themselves the cost of enforcement, which are considerable when it comes

to investigating and prosecuting foreign bribery. There are, of course, more than just economic

13 Sara C. Sáenz, “Explaining International Variance in Foreign Bribery Prosecution: A Comparative Case Study,” Duke Journal of Comparative & International Law, volume 27, pp. 272-298. 14 Sáenz, ibid., p. 276.

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and financial costs to governments. There are also political costs because MNCs are not

insignificant actors in the electoral process in their respective countries.

In short, there is a serious free rider problem in the OECD Convention. The benefits of

one country’s anti-corruption enforcement are not excludable to non-enforcers who can avoid

bearing any of the costs. This helps to explain why the overwhelming majority of the

Convention’s signatories have not been enforcing anti-bribery laws.

The Absence of Recourse

Compounding the free rider problem is the absence of a robust accountability regime

for the OECD Convention. There is no institutionalised body or process to sanction signatories

that do not implement foreign bribery laws. Unlike the terms of membership to other

international agreements such as the charter of the World Trade Organisation, enforcing

countries do not have a built-in recourse to compel non-enforcing countries to bear their share

of enforcement costs or to constrain their enjoyment of enforcement benefits. In the WTO,

member states can file a complaint against other member states after which a tribunal reviews

and adjudicates for or against the petitioner. In the case of the OECD Convention, aggrieved

parties that feel the national firms of other signatories beat them to a deal because of bribery

do not have recourse to a tribunal to file a complaint and argue for judgments of fault. At best,

they can report to the governments in question in the hope that they will investigate and

prosecute.15

Complicit Corporate Cultures

Given the lax enforcement environment in most Convention signatories, their

corporations have not significantly altered their behaviour and practices in the international

arena. Weak enforcement has meant little pressure to change corporate cultures that are

conducive to fraud and corruption.

Take Australia and New Zealand for example. Both countries rank highly among the

least corrupt countries in the world. However, both are also among the more moribund

enforcers of foreign bribery laws. As noted above, Australia has conducted a total of thirty-

three investigations since its ratification of the Convention but has only had two convictions in

seventeen years. The OECD’s reports on Australia have been critical of the government’s

record, including for prematurely closing investigations. For its part, New Zealand has not had

a single conviction or prosecution since its ratification of the convention. It has reported

conducting three investigations thus far.

15 Rachel Brewster, “The Domestic and International Enforcement of the OECD Anti-Bribery Convention,” Chicago Journal of International Law, Summer 2014.

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In 2015, Deloitte conducted a survey of 269 respondents of Australia and New

Zealand companies, Australian subsidiaries of foreign companies, and public sector

organisations.16 They found that one-third of companies operating in Asia, the Middle East

and Africa had uncovered suspected bribery or corruption over the last 5 years, but Australian

companies rarely self-report. Out of more than one hundred investigations conducted by

Deloitte during a two-year period, it found that only a few had been reported to the police.

From a risk management standpoint, Deloitte notes that 40% of enterprises that had foreign

operations did not have or did not know if they had compliance programs to manage corruption

risks even as 23% with offshore operations had never undertaken a risk assessment despite

having experienced a foreign bribery and corruption incident over the last 5 years.

In this corporate context, Australia and New Zealand firms have evidently not felt the

need to make changes to their codes of conduct. Until there is credibility in the government’s

pronouncements against foreign bribery, e.g. firms seeing the enforcement of the law from

investigation to conviction – they will continue to discount as they do now foreign bribery

prohibitions. Because the benefits simply outweigh the costs and risks.

Legal Constraints

There are also important legal factors that shape corporate attitudes and politicians’

response towards foreign bribery. Take for example Germany and France. Next to the U.S.,

Germany has been the second most active enforcer of foreign bribery, while France is a

relative laggard, having secured only four convictions since its ratification of the Convention.

In the former, there is no corporate criminal liability for foreign bribery, while there is for the

latter. Not surprisingly, German corporations have been supportive of stricter foreign bribery

laws, because it does not face liability. It is the employee involved that is liable. In France, its

corporations are less enthusiastic about strengthening foreign bribery regimes because of the

risks it poses to them especially given their procurement practices. A study “showed that 25%

of the Chief Purchasing Officers in France have been offered bribes by other French

companies”.17

Compounding the reticence of French corporations against stronger foreign bribery

laws is the fact that French prosecutors do not have independence in anti-bribery cases. Given

the close relationships between business and politics in France, where political networks are

popularly seen as crucial to commercial success, it is unsurprising that prosecutors can face

16 Bribery and Corruption Survey 2015 Australia and New Zealand: Separate the Wheat from the Chaff, Deloitte Australia 2015. 17 “France's Failure to Fight Foreign Bribery: The Problem is Procedure,” Global Anti-Corruption Blog, at https://globalanticorruptionblog.com/2015/12/14/frances-failure-to-fight-foreign-bribery-the-problem-is-procedure/.

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political headwinds when investigating foreign bribery. The situation is different from Germany,

where prosecutors have political independence and can therefore investigate with less fear or

pressure from elected officials.18

Law Enforcement Agency Deficiencies

The collective action-cum-free rider problem, the lack of accountability and recourse

mechanisms, complicit corporate cultures, and legal limits are helpful explanations for the

variation in enforcement among OECD convention signatories. However, to broaden our

analysis, it is imperative to consider as the unit of analysis the enforcement agencies

themselves

All signatories to the OECD convention have designated law enforcement agencies in

their respective jurisdictions for foreign bribery crimes. These agencies also bear the

responsibility for responding to the OECD’s peer-review and monitoring process. A common

defence of officials of anti-corruption bodies criticised by the OECD reports is the high level of

difficulty in investigating foreign bribery.

Take Australia and Austria for example. In Australia, the responsibility for enforcement

of foreign bribery lies with the Australian Federal Police (AFP) and the Australian Securities

and Investment Commission (ASIC). Interviewed following a critical OECD report regarding

Australia’s lack of foreign bribery convictions,19 the head of the AFP Fraud and Anti-Corruption

Unit explains that “these are complex matters…especially when you’re talking about large

corporations, the suspects are very smart people and incredibly litigious.” She says that

“large-scale investigations can span several countries. There are very lengthy processes…to

obtain evidence.”20 Indeed, the process to conclude an investigation and prosecution has

increased over time since the establishment of the Convention. The OECD finds that the

average number of years to complete a case from corruption incidence to the application of

criminal and civil penalties has grown to 7.3 years (Figure 12).

18 Sáenz, op.cit., p. 296-297. 19 OECD, Phase 3 Report on Implementing the OECD Anti-Bribery Convention in Australia, October 2012. See also “OECD seriously concerned by lack of foreign bribery convictions, but encouraged by recent efforts by the Australian Federal Police,” at http://www.oecd.org/australia/oecdseriouslyconcernedbylackofforeignbriberyconvictionsbutencouragedbyrecenteffortsbytheaustralianfederalpolice.htm 20 “AFP head of fraud unit explains lack of prosecution success,” The Sydney Morning Herald, November 9, 2013.

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Figure 12: Increasing Periods to Complete Cases of Foreign Bribery

The AFP’s explanations for its lacklustre performance is echoed by its counterpart in

Austria, the Federal Bureau of Anti-Corruption (BAK), which has secured no convictions for

foreign bribery in seventeen years since its ratification of the Convention. A BAK investigator

explains that foreign bribery cases are very complex and cross-jurisdictional: “…they are a

mixture of political and often also of a structural problem…and the greatest problem for the

investigators: all these cases and investigations do not stop on the Austrian border…”21

The investigator explains that in one case, BAK confiscated about 3.6 terabytes of data

(for comparison the Panama Papers trove was 2.6 terabytes). He estimated there are about

42,500 folders with 500 papers in each folder. BAK assigned a team of 3 investigators and 2

prosecutors to the case, which he said was insufficient: “it is not possible for an investigator to

look at all these papers”. He adds that they “have to investigate 30 suspects that have at least

one lawyer (but often more than one) and mostly a complete legal affairs department on the

company’s side”.22

In addition to being understaffed and overwhelmed, the investigator said that BAK

officers are underpaid, unable to retain staff because “too small salary for highly qualified

economic investigators”. He said that BAK investigations that cross international boundaries

can be quite protracted due to protocols and procedures. He explains that to make a request

for information from another country, the BAK would have to forward the request to the Public

21 Robert Kalensky, “Introduction of BAK, Current Cases of BAK, and the Main Problems of Corruption/Economic Investigations,” Meeting of Directors of National Institutions and Agencies for Combating Corruption and Organised Crime, Budva, Becici, 9 May 2011. 22 Ibid.

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Prosecutor’s Office, which is then transmitted to the Ministry of Justice, which in turn conveys

it to the Ministry of Justice of the other country, which then forwards it to the Prosecutor’s

Office and finally to the Police or another investigating agency. The information gathered is

then transmitted back to BAK through the same bureaucratic process, which, many months

later, arrives in BAK. In this respect, the investigator calls for bilateral agreements and

international databases to facilitate more efficient sharing and gathering of information among

law enforcement bodies.

Conclusion and Considerations

From a policymaking standpoint, there is nothing immediate that can be done to

address the free rider problem or the absence of accountability and recourse mechanisms in

the OECD convention. Any change to the terms of the Convention would require the review

and assent of the signatories. Legal constraints are also not immediately receptive to change,

and difficult, though not impossible, to surmount given the nature of legislative politics.

Corporate cultures are likewise not susceptible to rapid change, often requiring a combination

of legal and regulatory interventions or otherwise as disciplined by market forces. Where there

may be room for more immediate and impactful change is in enhancing the capacity and

competencies of law enforcement agencies of OECD signatories.

Law enforcers themselves, as illustrated by the preceding discussion on Austria and

Australia, feel undermanned, ill-equipped, and overloaded regarding investigating and

prosecuting foreign bribery cases that involve multinationals with substantial political, legal,

and financial resources to defend, deflect, and if not disrupt would-be pursuers. These MNCs’

use of secrecy jurisdictions to hide financial transactions and assets further strains small

investigative and prosecutorial staff.23

To illustrate the challenge, let’s return to the Australia example. When asked how

Australia’s foreign bribery investigations could be enhanced (as most of its ongoing foreign

bribery investigations have exceeded five years), the head of the AFP Fraud and Corruption

Unit said ''I can't really say, for such large and complex matters, how to expedite them…''24

This is a defeatist statement because, from an organisational standpoint, there is a

demonstrably evident staffing deficit and budgetary insufficiency in the AFP’s foreign bribery

effort that could be the principal area for institutional reform.

As a response to the 2012 critical OECD report, the AFP established its Fraud and

Anti-Corruption Centre (FAC). It started with about two dozen staff, many seconded from the

23 Gabriel Zucman, The Hidden Wealth of Nations: The Scourge of Tax Havens, University of Chicago Press, 2015. 24 “AFP head of fraud unit explains lack of prosecution success,” op.cit.

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Australian Border Force, the Australian Crime Commission, the Australian Securities and

Investments Commission, the Federal Prosecution Service and the Attorney General’s

Department. When it started, FAC was immediately overloaded as it had to deal with more

ongoing foreign bribery cases than personnel.

Compounding the FAC’s burden is the fact that it is not just responsible for foreign

bribery but all allegations of fraud and corruption at the national level. Since the passage of

Australia’s whistle-blower protection laws in 2014, over a hundred allegations are being lodged

every month (during its first six months of operation, the FAC received 668 reports).25 In this

context, the Australian government’s allocation of an additional A$14.7 million over three years

from 2016-17 to, among other things, hire about twenty-six new staff, is still insufficient. If fully

realised, there would be a total of about fifty-six staff to respond to over 1200 allegations a

year, a staff to case ratio of 1:21.

Similarly, Austria’s BAK faces an enormous workload. The Deputy Director of BAK

reported that in 2010 the agency received one thousand six hundred one (1601) allegations,

and that the agency completed four hundred fourteen (414) investigations.26 At that time, BAK

staff totalled 92 staff. Its staff to case ratio was thus 1:17. In this regard, both Australia and

Austria are clearly undermanned and under-resourced.

Consider, for comparative purposes, the case of Hong Kong’s Independent

Commission against Corruption (ICAC). Hong Kong is not party to the OECD Anti-Bribery

Convention, but it is regarded as one of the least corrupt places in the world, consistently

ranking high in TI’s Corruption Perceptions Index. It is considered to have one of the most

efficient and effective anti-corruption enforcement regimes (its annual conviction rate of

corruption cases is consistently above eighty percent). As an economy, Hong Kong is far

smaller than Australia or Austria (the Australian state of NSW alone is one and half times

bigger than the Hong Kong economy while Austria’s economy is 25% larger). Yet Hong Kong’s

ICAC budget of US$120 million in 2013, with a total staff of one thousand two hundred eighty-

two (1282), significantly exceeds those of Australia and Austria’s law enforcement entities.

Although Hong Kong’s ICAC has a bigger case load than the FAC or the BAK, with

3,932 complaints received in 2013, its staff to case ratio is much smaller, at 1:3! Not

surprisingly, in 2012, the ICAC investigated 75% of its complaints compared to the BAK which

investigated only 25% of its allegations in 2010.27

25 Emil Bolongaita, “Panama Papers Expose Disparity,” The Australian, April 12, 2016. 26 Rene Wenk, “Austrian Federal Bureau of Anti-Corruption,” Presentation at Meeting of Directors of National Institutions and Agencies for Combating Corruption and Organised Crime, Budva/Becici, 09 May 2011. 27 Bolongaita, op.cit.

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Pending further organisational analysis of law enforcement agencies of OECD

Convention signatories, this partial comparative assessment of anti-corruption agencies

among Australia, Austria, and Hong Kong suggest that a demand-driven review of the

requirements of enforcement agencies is needed to appropriately ascertain requirements to

deliver its mandate. If the Hong Kong experience can be a benchmark, the costs of operating

an effective anti-corruption body is considerable. But imagine this: what would be the costs to

Hong Kong if the ICAC did not exist? As the former Deputy Director for Operations of ICAC

puts it, the agency’s budget should be viewed not as cost but as a “worthwhile investment” to

maintain a clean society with economic, social and political benefits from being so.28 To be

sure, as the U.S. experience shows, the financial benefits for successfully prosecuting foreign

bribery are not inconsequential returns, because the revenues to government from forfeiture

of ill-gotten assets and receipt from sanctions applied to erring firms have been substantial.

If the Hong Kong experience is to be a benchmark with respect to organisational

strength, then the staff requirements of the FAC would have to be increased from about 56 to

around 400 staff (to achieve a 1:3 staff to case ratio), while that of the BAK would have to

increase from 92 to around 500 staff. This would of course require a considerable increase of

budgets. In the Hong Kong case, the ICAC budget has averaged about 0.3% of the territory’s

total government budget. At this level, the FAC budget would be about $1.3 billion while that

of BAK would be about $576 million (!).

Increasing law enforcement agencies’ appropriation is not an easy proposition even in

the best of times. A national budget is the outcome of complex struggles among political

forces, policy arguments, and problems competing for attention and solutions. Hence, to

recommend strengthening law enforcement agencies’ capabilities and competencies in

enforcing foreign bribery and other types of corruption is a tall order. But it is a most reasonable

order given the evidence. At the very least, the OECD can include financial and operational

adequacy reviews of law enforcement agencies in its peer-review and monitoring process of

Convention signatories.

As discussed, foreign bribery laws are among the toughest crimes to investigate and

prosecute. Their enforcement is hampered by the collective action challenge of sovereign

states that behave autonomously and can act as free riders in the enjoyment of benefits and

avoidance of costs. This situation is compounded by national legal frameworks and MNCs

whose corporate cultures have not been historically constrained to desist from bribery to win

international business. In this context, it becomes critical for law enforcement agencies

28 Tony Kwok, “Successful Anti-Corruption Strategy, Effective Investigation, and the Role of Government Agencies in Combating Corruption in Hong Kong,” UNAFEI Paper, undated.

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charged with implementing foreign bribery laws to be robustly resourced and superbly staffed.

Unless the agencies have the means to match their mandate, they cannot contend with the

hyper-complexities of international financial crimes and the superior strength of illicitly-

endowed corporate criminals.

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