Business Financial Crime: Bribery and Corruption II

1. Business Financial Crime: Bribery and Corruption II

2. Cases of Grand Corruption Mobuto, Zaire US $ 5 billon More Than the Foreign Debt Duvaliers, Haiti US $ 500 million 87% of the Annual Government Budget Nigerian kleptocrats US $ 100 billion More than double the GDP 3-4 times the Foreign Debt

3. Is Bribery a Business Necessity? • Bribery can be distinguished from so-called gifts and ‘facilitating’ or ‘grease’ payments. The latter are payments to motivate agents to complete a task they would routinely do in the normal course of their duties. • It is now generally agreed that bribery undermines equity, efficiency and integrity in the public service, undercuts public confidence in markets and aid programs, adds to the cost of products and may affect the safety and economic well-being of the general public.

4. Global Movement to Criminalize Bribery • The United Nations adopted the UN Declaration Against Corruption and Bribery in International Commercial Transactions, in December 1996. • Committed UN members to criminalize bribery and deny tax deductibility for bribes.

5. Preventive Measures in Private Sector Enhanced Accounting and Auditing Standards Effective, Proportionate and Dissuasive Civil, Administrative or Criminal Penalties Comprehensive Preventive Measures in Private Sector Prohibition of Off-the-Book Account and other Acts No Tax Deductibility of Expenses Constituting Bribes

6. OECD Members’ Tax Treatment of Bribes Source: OECD

7. UN Preventive Measures - Examples Participation of Society • Ensure Active Participation of Civil Society (Art.13 (1)) • Provide Public Access to Anti-Corruption Bodies (Art.13 (2)) • Encourage Citizens to Report on Offences (Art.39) Prevention of Money-Laundering • Establish Comprehensive Regulatory and Supervisory Regime • Ensure Internal and International Cooperation (Art.14)

8. Foreign Corrupt Practices Act • Anti-Bribery Provisions and Accounting Requirements • FCPA prohibits giving/offering/promising anything of value, directly or indirectly, to a foreign government official or his/her relatives or nominees, political parties or party officials in exchange for getting or keeping business, or gaining any improper business advantage • “Anything of value” includes cash, gifts, valuable benefits, intangibles (travel, entertainment) • No de minimus exception • Prohibits indirect corrupt payments through agents or intermediaries • Company liable if authorises payment or knew payment would be made by agent • Knowledge includes awareness of “high probability” that corrupt offer will be made

9. Scope of FCPA • All US companies • All US citizens and permanent residents anywhere in world regardless employer • Any individual with respect to actions in US • Foreign companies with headquarters in US • Issuers – foreign companies listed on US stock exchanges

10. Exceptions to FCPA anti-briberyprovisions • Payments for “routine governmental actions” or “facilitating payments”, including obtaining permits, licences or other official documents • Routine governmental action does not include decisions by foreign officials to award new business or continue in business with a particular party • Payments made for “reasonable and bona fide” expenditures related to marketing of products are also allowed • Recent US court decisions raise doubts about scope of exceptions

11. Penalties for anti-bribery violations of FCPA • Companies can be fined up to greater of US$2 Million or 2 times the benefit • Individuals can be fined up to US$250,000 • Individuals can be imprisoned up to 5 years • These penalties may be applied for each violation

12. Criminal penalties • For wilful violations of books and records requirement: • Listed companies can be fined up to US $25,000,000 • Individuals can be fined up to US$5,000,000 • Individuals can be imprisoned up to 20 years

13. OECD Convention on Bribery • Organisation for Economic Co-operation and Development (OECD) Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions (1999) Objective: • To reduce corruption by sanctioning bribery in international business transactions carried out by companies based in Convention-signatory countries • To create a truly level playing field in the international business environment • As of September 2006, 36 countries have ratified the Convention

14. OECD Convention on Bribery • The OECD has no authority to implement the convention, but instead monitors implementation by participating countries • Countries are responsible for implementing laws and regulations that conform to the convention and therefore provide for enforcement, including criminalising bribery of foreign public officials

15. EU Anti-Corruption Measures • Lags well behind the US: few EU provisions in place to deal with risks to EU business relating to corruption in developing countries 􀂋 • EU Convention on Corruption (1997) provides for prosecution of corruption involving officials of the EU or its members states, but not by companies or company employees • UK’s Antiterrorison, Crime and Security Act 2001: updates British law on corruption and bribery • No distinction between facilitation payments and grand bribes, thus outlawing the former 􀂋 • Still, compliance with Sarbanes-Oxley and the EU’s recent equivalent (Eighth Company Law Directive) now wise policy for EU businesses

16. Transparency International Bribe Payers Index 2002 A perfect score, indicating zero perceived propensity to pay bribes, is 10.0, and thus the ranking below starts with companies from countries that are seen to have a low propensity for foreign bribe paying. All the survey data indicated that domestically owned companies in the 15 countries surveyed have a very high propensity to pay bribes – higher than that of foreign firms.

17. Bribery in Business Sectors • “The BPI shows that the most flagrant corruption is seen in the public works/construction and arms and defence sectors, which are plagued by endemic bribery by foreign firms. • In a new study by the UK chapter of TI, it is estimated, for example, that foreign bribery is associated with tens of billions of dollars of defence deals,” said Kamal Hossain of TI.

18. Bribery in Business Sectors • The score is the mean of all the responses on a 0 to 10 basis where 0 represents very high perceived levels of corruption, and 10 represents extremely low perceived levels of corruption.

19. Transparency InternationalCorruption Perceptions Index 2007

20. Transparency InternationalCorruption Perceptions Index 2007

21. Transparency InternationalCorruption Perceptions Index 2007

22. Corruption and Gender • Research by Swamy et al. (2000) presents evidence that • (a) in hypothetical situations women are less likely to condone corruption, • (b) women managers are less involved in bribery, and • (c) countries which have greater representation of women in government or in market work have lower levels of corruption. • This evidence, taken together, provides some support for the idea that, at least in the short or medium term, increased presence of women in public life will reduce levels of corruption.

23. Corruption and Gender • They do not claim to have discovered some essential, permanent, or biologically-determined differences between men and women. • The gender differences observed “may be attributable to socialization, or to differences in access to networks of corruption, or in knowledge of how to engage in corrupt practices, or to other factors” (Swamy et al., 2000)

24. Environmental Impact:Renewables Logging Poaching

25. Environmental Impact:Non-Renewables Oil Extraction Mining

26. Trends • Poverty, corruption and environmental degradation are related • Countries that depend on natural resources are prone to environmental corruption • Western consumers can provide incentives for corruption

27. Environmental Costs • Pollution and ecosystem disruption • Secondary effects: • Displacement of people • Species extinction • Economic development inhibited

28. References • Bray, J. (2007) Facing up to Corruption: A Practical Business Guide, Control Risks Group • Bryane, M (2004) Some Reflections on Donor Sponsored Anti-Corruption, Conference presentation, http://users.ox.ac.uk/~scat1663/Publications/Presentations/anticorruption%20speech.htm retrieved 27 Nov 2007 • Dowling, P and Welch, D. (2004), International Human Resource Management: Managing People in a Multinational, Thomson.

29. References: cont. • Mauro, P. (1998) Corruption: Causes, Consequences and Agenda for Research, IMF/World BankFinance and Development, March. • Myint, U. (2000) Corruption: Causes, Consequences and Cures, Asia-Pacific Development Journal,7(2). • Swamy, A., Knack, S., Lee, Y. and Azfar, O. (2000) Gender and Corruption, Working paper, Williams College. • Tanzi, V. (1998) Corruption Around the World, IMF Staff Papers, 45(4). • Tavits, M. (2005) Causes of Corruption: Testing Competing Hypotheses, Working paper, Nuffield College.