Self Reporting Not a Substitute for Vigorous Enforcement

Earlier this week, the Director of the UK Serious Fraud Office, which has responsibility for prosecuting foreign bribery cases, updated its earlier guidance on the benefits of self-reporting on overseas corruption. In a December 7th letter to Arnold & Porter, Richard Alderman answered questions on the criteria the SFO will apply when deciding whether to treat a self-reported matter criminally or civilly; the scope of investigation that will satisfy the SFO and avoid the need for additional, SFO-directed investigation; the circumstances for appointing monitors; treatment of attorney-client privilege; and whether the SFO will close a voluntary disclosure case without any actions.

In the absence of a credible threat of prosecution, the more fundamental question is whether offering benefits for self-reporting will effectively deter foreign bribery. Some companies may self-report and undertake restitution, training and sanctions in order to benefits such as civil sanctions rather than criminal prosecution; an opportunity to work with the SFO to manage issues and publicity; and a negotiated settlement rather than mandatory debarment from public contracts. Others may take their chances until the SFO has a track record of enforcement that creates the right incentives. While TI-USA commends the SFO for its efforts to foster corporate integrity and is encouraged by the prosecution of Mabey & Johnson Ltd (which arose from the company's voluntary disclosure), the UK still needs to enact a foreign bribery law and pursue major cases.

OECD Issues New Recommendation to Reinforce Anti-Bribery Efforts

Today, OECD Secretary General, Angel Gurría announced the release of a new "Recommendation of the Council for Further Combating Bribery of Foreign Public Officials" at an event hosted by Transparency International-USA in Washington, DC. The Recommendation picks up on extensive TI recommendations intended to reinforce OECD countries’ efforts to prevent, detect and investigate foreign bribery, including:
• Continued “rigorous and systematic” monitoring and reporting on implementation of the OECD Anti-Bribery Convention, including information on investigations and prosecutions;
• Suspension from public contracting or other public advantages of companies found to have bribed;
• Encouraging companies to adopt more stringent internal controls and to prohibit “facilitation payments” (An annex on good corporate practices is currently being negotiated and should be ready for adoption by March of 2010.);
• Strengthened reporting channels and whistleblower protection; and
• Increased outreach to emerging exporters which are not OECD Members to adhere to and implement the Convention.

Speakers at today's event sent a clear call to action. Following a message from Secretary of State Hillary Clinton, Secretary-General Gurría, Commerce Secretary Gary Locke and the U.S. Permanent Representative to the OECD Karen Kornbluh called for heightened attention to the anticorruption agenda. “The message we are sending on foreign bribery is clear,” said the Secretary General, “the only ones who should pay the price for this crime are its perpetrators.” “It is not a victimless crime,” noted the Commerce Secretary. “It’s not just greasing the wheels of business. It is cheating the people of these countries.” For more about the event, click here.

December 9th Event: 10 Years Later: Assessing the Impact & Future of the OECD Anti-Bribery Convention

On December 9th, International Anti-Corruption Day, Transparency International-USA will host an event at the National Press Club marking the 10th Anniversary of the OECD Anti-Bribery Convention. Featured speakers include Angel Gurria, Secretary-General, Organization for Economic Cooperation and Development (OECD) and Secretary Gary Locke, U.S. Department of Commerce. Mark Pieth, Chairman of the OECD Working Group on Bribery will make introductory remarks via a live video cast from Paris. Alan Larson, Chair, Transparency International-USA and former Under Secretary of State will moderate.

Billions of dollars are squandered on bribes paid to public officials in exchange for business advantages representing a huge, hidden tax that retards economic development and drains a significant portion of development funds from poor countries. The entry into force of the OECD Anti-Bribery Convention was a landmark in the fight against bribery in international business and development, committing the major industrialized nations to enforce foreign bribery prohibitions similar to the US Foreign Corrupt Practices Act. Ten years later, how has this convention worked in practice? In the current global economic downturn, will increased pressure to win contracts undermine vigorous, consistent enforcement? What will be the impact on competition for stimulus-related contracts? What are the prospects for engaging emerging exporters, such as China and India?

Please join us for a lively discussion. Breakfast from 7:30 am; speakers at 8:00 am. National Press Club, 529 14th Street, NW Washington, DC. RSVP by December 4th to transparency@transparency-usa.org or 202-589-1616.

Doha Outcome Raises Hope for UN Convention

As reported earlier, the 142 Parties to the UN Convention Against Corruption (UNCAC), meeting in Doha in November, adopted a mechanism to review convention implementation, ending a prolonged deadlock that had prevented the UNCAC from gaining traction. With near-final documents now posted on the UN Office of Drugs and Crime (UNODC) web site, it seems that if governments opt to make reviews fully transparent, inclusive and detailed, the outcome may be more positive than first reported.

With respect to inclusiveness, governments are encouraged to consult with external stakeholders in preparing responses to a standard checklist for review by two other governments. If they opt to supplement this ‘desk review’ with an ’in country’ visit, they are to “facilitate engagement” with those stakeholders.” Although there is no mechanism for external input directly to the review teams, there is no prohibition on submissions to UNODC, which serves as the UNCAC Secretariat.

With respect to transparency, governments may keep final country reports confidential, but an executive summary will be “made available as official documents” in all UN official languages.

We will be watching to see how the mechanism works in practice as the first half of the 10-year review cycle assesses implementation of the UNCAC provisions on “criminalization and law enforcement” and “international cooperation.”

TI-USA appreciates the Obama Administration’s support in defeating attempts to weaken key provisions and Attorney General Holder’s forceful call to action at the Global Forum. The Doha outcome culminates numerous high-level meetings with the Administration and participation in the joint effort of the UN Global Compact, International Chamber of Commerce and World Economic Forum securing supportfrom 24 corporate CEOs and with over 300 civil society organizations to build national level support

The State Department has invited TI-USA to a briefing on the Doha outcomes on November 30th, and we will post any new information we receive at that time.

Regulators Note Common Internal Control Failures at the ACI-FCPA Conference

Companies are understandably looking for more guidance from regulators (both SEC and DOJ) to avoid FCPA violations.

Tracy Price (SEC Branch chief of the Division of Enforcement) provided some useful insights on common internal controls failures as part of her presentation at the 22nd ACI FCPA conference. We commend regulators for sharing their views at these conferences, but would encourage them to make this guidance more widely available on their agency websites.

According to our notes, some of the common internal controls failures that Tracy observed and which are worth repeating are:

1) Failure to adequately control payments to third parties.
2) Creation of contracts based on success fees where it is not clear what services the agent is providing other than obtaining the contract by any means.
3) Authorization of payments by non finance staff- i.e. sales staff can set up accounts and accruals with no oversight from the finance department and there is no adequate segregation of duties.
4) Failure by finance staff to adequately review documentation especially when even a cursory review of documentation would reveal that it is fake.
5) Payments to third parties using offshore bank accounts.
6) Payment amounts that differ from what was actually authorized.
7) Failure to follow policies and procedures and lack of adequate training on policies and procedures.
8) Absence of clear authorization processes for accruals, bank accounts.
9) Absence of adequate authorizations for the travel of Government officials and lack of supporting documentation and explanations surrounding the reasons for the travel.
10) Failure to maintain adequate controls over books and records to ensure that entries are not vague.
11) Failure to train finance staff to understand that their duties include more than mere data entry.
12) Failure by internal audit to look for common red flags in their review processes.

World Bank Integrity Day

The World Bank celebrated its second annual Integrity Day on November 4th, with an opening address by President Robert Zoellick and comments from Managing Director Juan Jose Daboub and INT Vice President Leonard McCarthy. The President noted the importance of putting integrity at the heart of development and said it was time to 'step up the game,' starting with the Bank's being seen as a model of integrity.

TI Chair Huguette Labelle and TI-USA President Nancy Boswell joined Justices Cario-Morales from the Philippines and Dow from Botswana and Dr. Samuel Paul from Bangalore in providing external perspectives. While TI commended the Bank for significant progress, it underscored some of the key actions yet to be taken. These included attention to narrowing the exceptions that threaten to swallow the new and groundbreaking presumption of transparency adopted in the Bank’s revised Disclosure Policy. The Bank should expand and regularize its external consultation with civil society and encourage its borrowers to do the same. This is particularly important given the increasing crackdown on public access to information and opportunities for civil society participation. Staff incentives still need to be realigned to reward attention to integrity and accountability in order to ensure the necessary change in organizational culture. Finally, we have encouraged the Bank to open Integrity Day to the public and to make the president's remarks public. We are pleased that the remarks have now been posted to the Bank's external website at http://siteresources.worldbank.org/INTDOII/Resources/Integrity_Day_Opening_Address_RBZ.pdf

TI 2009 Index Finds Corruption Persists Worldwide Despite Decade of Promises to Fight It

Despite a decade of commitments to fight it, corruption continues to be endemic in much of the world, according to Transparency International’s 2009 Corruption Perceptions Index (TI Index), released today. With 131 out of the 180 countries surveyed scoring below 5 out of 10, the need for governments to deliver on their anti-corruption commitments is more urgent than ever.

The TI Index is a call for action by the 142 nations that have committed to implement the anti-corruption reforms required by the UN Convention Against Corruption. It demonstrates the need for the G20 to put commitments into action, particularly stemming payments of bribes in transnational business and development, ending bank secrecy and strengthening transparency of financial markets and institutions.

The ranking of Afghanistan, Iraq and Pakistan at or near the bottom of the TI Index underscores the urgency of action in countries where the U.S. has vital strategic and national security interests. President Obama and Secretary of State Clinton have acknowledged the devastating impact of corruption on efforts to strengthen democratic institutions, political stability and economic growth. A consistent and coherent attack on corruption must be a central component of U.S. foreign policy and its development assistance. The U.S. should intensify its work with governments to enhance transparency, oversight institutions and rule of law. At the same time, commitments to close U.S. borders and its financial system to the corrupt and their illicit gains must be fully observed.

In this time of economic hardship, every effort must be made to ensure accountability for the massive financial flows committed to the recovery effort and that they reach those in need. In the U.S. as in all countries, rapid financial disbursements raise the risk of corruption. The Index makes clear that no country can afford to ignore this risk.

See http://www.transparency.org/policy_research/surveys_indices/cpi/2009 for details.