Beyond Business Principles
Recommendations to the UK Export Credits Guarantee Agency

The UK Export Credits Guarantee Department (ECGD) has a legal obligation to combat corruption. But its failure to adopt non-discretionary, transparent procedures is fundamentally flawed, argues this presentation at an NGO Seminar on Export Credit Reform held in the House of Commons, London.

Summary

The UK Export Credits Guarantee Department (ECGD) has legal and political obligations to introduce measures to combat bribery and corruption. But the steps it has taken are limited. In particular, its preference for a case-by-case approach rather than establishing non-discretionary, transparent procedures is a fundamental weakness.

Contents

• 1. Beyond Business Principles: The Case for Reform
  • 1.A. Its Required: The OECD Anti-Bribery Convention
    • Introduction
    • The UK's Lack of Political Will
    • Making a Difference...Changing Behaviour
    • Obligations on the Export Credit Guarantee Department (ECGD)
      • Limited Interpretation
• Box 1: Providing for Exclusion
  • Legally Binding Convention
    • Article 3
    • Commentaries
  • 1977 Revised Recommendations
    • General
      • Wider Interpretation
    • Response of the Export Credit Guarantee Department (ECGD)
  • 1.B. It's Possible
    • Transparency
    • Debarring Companies
    • Codes of Conduct
    • Greater Role for Civil Society and Parliamentary Monitoring
    • Whistleblowing and Hotlines
  • 1.C. Political Will...
• Box 2: Annex: The OECD Multinational Guidelines -- An Overview
• Notes and references

1. Beyond Business Principles: The Case for Reform

It is imperative that the UK ECGD moves beyond its Business Principles and adopts working practices that deter and detect bribery and corruption. The case for reform is based on two underlying principles:

• First, it's required: The OECD Anti-bribery Convention and Revised Recommendations
• Secondly, it's possible.

1.A. Its Required: The OECD Anti-Bribery Convention

Introduction

The UK ECGD has legal and political obligations to introduce measures to combat bribery and corruption under the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The Convention, which was signed in 1997, is a highly targeted anti-corruption instrument that aims to prevent bribery in international business transactions. It requires signatory countries to enact legislation that criminalises the act of bribing a foreign public official. It comprises two parts:

• The Convention which contains legally binding provisions;
• The 1977 Revised Recommendations, which is non binding instrument but represents an expression of common political will.

The OECD Convention is the first legally binding instrument aimed at curbing the corrupt behaviour of OECD Multinational Companies (MNCs). It represents an exciting development in the international campaign against supply-side corruption.

The UK's Lack of Political Will

The UK Government ratified the OECD Convention in 1998 on the basis of existing legislation, seeking to convince the OECD that laws passed in 1889 and 1906 were in compliance with the Convention. The UK Government adopted this position, despite the expert advice of Transparency International who campaigned for a change to the law, and on the basis of legal opinion that has never been made publicly available.

Under the OECD Peer Review process, experts from France and the Netherlands, charged with assessing the compliance of the UK legislation, were unable to determine that the existing laws were in compliance, reporting "there is no explicit provision criminalising bribery of foreign public officials" and recommending that the UK enact more appropriate legislation.

After further delay, the provisions of the new legislation finally came into force on the 14th February 2002, under the Anti-Terrorism, Crime and Security Act 2002 (Chapter 24, Part 12).

By dragging its feet during the first phase of implementation of the OECD Convention, the UK Government earned a reputation as a reluctant contributor to the international fight against supply-side corruption.

Making a Difference...Changing Behaviour

Now that it has enacted appropriate national legislation, the challenge to the UK Government is to ensure that the OECD Convention 'makes a difference' in terms of deterring UK companies from engaging in international bribery. This requires the UK Government to put in place measures both to fulfil its obligations under the legally binding Convention and to follow the standards provided by the 1997 Revised Recommendations.

Obligations on the Export Credit Guarantee Department (ECGD)

The provisions of the OECD Convention and its 1997 Revised Recommendations have direct implications for how the UK ECGD conducts it business.

Limited Interpretation

The main source of interpretation and guidance on these obligations is the OECD Working Party on Export Credits and Credit Guarantees, which is the body charged with ensuring the implementation of the Convention in respect of international business transactions benefiting from official export credit support. The Working Party has produced an Action Statement on Bribery and Officially Supported Export Credits that commits ECAs to undertaking the following actions in order to deter bribery:

• All official export credit and export credit insurance providers shall inform applicants requesting support about the legal consequences of bribery in international business transactions under its national legal system including its national laws prohibiting such bribery;
• The applicant and/or the exporter, in accordance with the practices followed in each ECG Member's export credit system, shall be invited to provide an undertaking/declaration that neither they, nor anyone acting on their behalf, have been engaged or will engage in bribery in the transaction;
• The applicant and other parties receiving or benefiting from support remain fully responsible for the proper description of the international business transaction and the transparency of all relevant payments;
• The applicant and other parties involved in the transaction remain fully responsible for compliance with all applicable laws and regulations including national provisions for combating bribery of foreign public officials;
• If there is sufficient evidence that such bribery was involved in the award of the export contract, the official export credit or export credit insurance provided shall refuse to approve credit, cover or other support;
• If after credit, cover or other support has been approved, an involvement of a beneficiary in such bribery is proven, the official export credit or export credit insurance provider shall take appropriate action, such as denial of payment or indemnification, refund of sums provides and./or referral of evidence of such bribery to the appropriate national authorities.¹

This Action Statement provides a highly useful first step. It provides a common standard, to which all OECD ECAs must adhere, and sets out fundamental requirements in relation to promoting the Convention, obtaining no--bribery declarations from applicants and providing for sanctions against companies found to have engaged in bribery.

However, these commitments are insufficient to ensure that the policies and procedures of ECAs are effective in supporting the overall aims of the Convention as:

• first, there is no agreement to require ECAs to provide for sanctions of excluding companies found to have engaged in corruption. This sanction is provided for in the Commentaries to Point 4 of Article 3 of the Convention, as well as in the 1997 Revised Recommendations (see BOX 1) and provides a potentially powerful deterrent to bribery;
• secondly, the Action Statement is highly limited in scope. It fails to address the need for ECAs to put in a supporting framework in order to ensure that ECAs can be effective in deterring bribery in the international business transactions that they supports and upholding the requirements of the Convention.

Wider Interpretation

The OECD Working Group on Bribery in International Business Transactions, which is responsible for monitoring member countries' compliance with the Convention, identifies a total of 19 (wide-ranging) issues² that are relevant to assessing the adequacy of national measures put in place to enforce the rules and laws of the Convention and the provisions of the 1997 Revised Recommendations. Indeed, in the next OECD Peer Review, the UK's performance will be assessed against these measures.

A number of these are specifically relevant to the activities of the ECGD. Hence, in view of the limited scope of the ECGD framework, the UK ECGD should take on board this wider interpretation of the requirements of the OECD Convention and support the following actions:

• Improve transparency: transparency is the cornerstone of any anti-corruption strategy. The letter and the spirit of the OECD Convention requires the UK ECGD to open its operations to greater consultation with civil society and higher scrutiny by Parliament;
• Establish, a priori, grounds and procedures for applying sanctions, including the possibility to exclude companies that have been found guilty of corruption (by black-listing or white listing): this means addressing the institutional and legal challenges of sharing information on the criminal activities of companies and individuals between agencies within and between countries. The prospect of exclusion provides a powerful deterrent to bribery;
• Introduce due diligence procedure for detecting corruption: including holding information on and investigating agents and the use of forensic auditing. The Convention imposes a duty on the ECGD to put in place procedures that will help detect bribery;
• Require companies to comply with Codes of Conduct or corporate compliance programmes: that set out anti-corruption policies and procedures that show compliance with good practice accounting standards and set out policies in relation to subsidiaries and agents. Whilst foreign subsidiaries are not specifically covered by the OECD Convention, Article 1 prohibits all forms of complicity. In this context, given that subsidiaries are the most common vehicle for the payment of bribes, the ECGD should actively seek to encourage customers to include subsidiaries, intermediaries and agents in their anti-corruption policies.
• Require companies to disclose commissions, gifts and facilitation payments:³ the OECD Convention sets out accounting provisions in addition to its anti-bribery provisions. The aim of the former is to ensure that the accounts provide an accurate reflection of the transactions of the corporation -- and could not be used to hide bribes. Article 8 of the Convention specifically requires countries to prohibit 'inadequately identified transactions'
• Adopt and promote whistleblowing procedures. Whilst the OECD Convention does not impose specific obligations regarding whistle blowing, the OECD monitoring processes identifies whistle blowing as a relevant factor for both detecting and deterring bribery.

Response of the Export Credit Guarantee Department (ECGD)

The ECGD has put in place both anti-corruption policies and procedures.

In terms of policies, itsBusiness Principles contains a section on Business Integrity that sets out the ECGD's commitment to promoting the full implementation of the OECD Anti-bribery Convention and complying with international agreements which regulate the provision of export credits such as the OECD Guidelines.

In terms of procedures, the ECGD has introduced a number of useful procedures including:

• Introducing a requirement for applicants to sign a warrantee stating that neither the applicant nor anyone acting on its behalf has engaged or will engage in corrupt activity in connection with either the contract or investment for which ECGD support is requested. The warrantee applies to those acting on behalf of the company and thereby includes agents;
• Informing customers that breaching the warranties could lead to a range of sanctions being imposed;
• Requiring guarantees from applicants that they do not appear on the World Bank blacklist and have not been convicted of corruption at any time.

However, whilst these are important steps, the ECGD's preference for a case-by-case approach over the establishment of non-discretionary, transparent procedures represents a fundamental weakness.

1.B. It's Possible

The second element of the case for reform is that 'it is possible'.

Taking account of the practices of other public agencies is a useful as a demonstration of what can be done to combat bribery and corruption.

Transparency

• Ex Im, the USA Export Credit Agency publishes a list of projects under review;
• Finnish Export Credit Agency, Finnvera Oyj is caught by conflicting legislation: secrecy and confidentiality laws versus access to information laws. It is now undertaking a review of the implications for its activities.

Debarring Companies

• World Bank: the World Bank took a pioneering lead on deterring supply side corruption in 1997 when it introduced a policy of debarring companies that were found to have violated the fraud and corruption provisions of its Procurement or Consultant Guidelines: "will declare a firm ineligible, either indefinitely or for a stated period of time to be awarded a Bank-financed contract if at any time determines that the firm has engaged in corrupt or fraudulent practices in competing for, or in executing a Bank financed contract."⁴ The decision to debar is made on the basis of an administrative procedure - the Bank does not require a court conviction. The list of debarred companies is published on the web. The World Bank is currently examining the potential for development agencies to exchange information on companies and individuals which have engaged in corruption.
• The European Commission: Current EU public procurement law makes no provisions for excluding companies that have been engaged in corruption. However, the European Commission's proposals for a new public procurement Directive coordinating public service contracts, public supply contracts and public works contracts, introduces the possibility of excluding companies found guilty of corruption from tendering for public procurement contracts in the EU (Article 46). This Directive which is still under discussion, would require EU member states to enact appropriate legislation and to establish a mechanism for sharing information on the corrupt activities of individuals and companies between administrations - both within and between states.
• EU member states: a number of EU member states provide for exclusion from public tendering process for (varying) period of times: France, Germany, Luxembourg, Spain, Greece and Belgium.⁵
• The USA Export Credit Agency, ExIm is currently going through its re-chartering with its new mandate being negotiated in Congress. There is a draft proposal under consideration that will require ExIm to compile and hold a list of all violators of the Foreign Corrupt Practices Act - which is the USA's anti-bribery legislation that has been in place for over 20 years and has secured around 50 prosecutions. The aim is to deter bribery in the international transactions supported by Ex Im by naming and shaming and having in place sufficiently strong punitive measures -- debarment for 3 years. Arguably a key motivation for this action is the Enron debacle and the realisation of the very real reputational risk to government that arises from providing support to corrupt companies.
• Department for International Development: is currently examining the scope to operate a system for exchanging and acting upon information on corrupt individuals and companies between development agencies

Codes of Conduct

• The Finnish Export Credit Agency, Finnvera Oyj: after campaigning by civil society and the trade unions, the law has been changed such that the Export Credit Agency has a duty to promote the OECD Multinational Guidelines.
• The Netherlands Export Credit Agency, Nederlandsche Credietverzekering Maatschappij NV: In the Netherlands, the granting of export credit guarantees is now tied to the OECD Multinational Guidelines. Dutch companies applying for export credit guarantees are required to sign a declaration stating that they will abide by the OECD MNC Guidelines.

Greater Role for Civil Society and Parliamentary Monitoring

• Canada, Export Credit Agency, Export Development Corporation (EDC): has put in place a compliance officer or ombudsman and established a Corporate Social Responsibility Committee comprising, amongst others, Transparency International.

Whistleblowing and Hotlines

• The UK Public Interest Disclosure Act (PIDA): The UK has model legislation in place that protects whistleblowers (employees), in both the private and public sectors, who disclose information through the appropriate channels in good faith and in the public interest. Other government departments, such as the NHS, have developed sophisticated compliance procedures.
• The World Bank and the European Commission: have both put in place hotlines for encouraging external whistleblowing so as to encourage the reporting of corruption and bribery and the put in elaborate so as to encourage the supply of information that is vital to both deterring and detecting bribery and corruption.

1.C. Political Will...

Compliance with -- and effective support of -- the OECD Anti-bribery Convention presents a considerable challenge to all OECD governments. Whilst arguably OECD governments seeking to promote exports face a conflict of interest in holding domestic companies to account for corrupt activities overseas, the risks of their not doing so are high.

Enron is a case in point. A healthier appetite for a higher level of scrutiny by the USA Government of Enron's activities overseas, where it faced many allegations of bribery and corruption (and is now under investigation for violation of the FCPA) could have avoided catastrophic consequences for investors, pension funds and workers in the USA -- as well as for the citizens of India, Croatia and Ghana.

It is essential that OECD governments exercise greater political will in holding domestic MNCs to account. The UK ECGD must reform its procedures so as to help ensure that UK companies that it supports are deterred from engaging in corrupt activities in their international business transactions.

Notes and references

1 Action Statement on Bribery and Officially Supported Export Credits

2 The OECD Phase 2 Questionnaire

3 Facilitation payments are specifically excluded from the OECD Convention but fall under the UK's national enacting legislation

4 www.worldbank.org

5 Procurement and Organised Crime: An EU-Wide Study: Edited by Simone White