Strengthening Counter Corruption Efforts

Transcription

1 Strengthening Counter Corruption Efforts (with some defence focus) March 2011 Garmisch-Partenkirchen UFUK BATUM Member of the Board Transparency International - Turkey

2 TRANSPARENCY INTERNATIONAL An independent, non-profit NGO Founded in 1993 by World Bank executives frustrated at leakage of Bank funds and no action, Present in 95 countries, Funded by charities, institutions, individuals and companies, Corruption Perception Index is best known public face, Bribe Payer s Index, etc., Focused on combating corruption with constructive measures, Defence and Security Programme since 2004.

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5 The TI Defence Programme 1. Initiated following two conferences 2000, Global project carried out by TI UK on behalf of global TI movement. Started Dec 2003; current funding to end 2009 (mainly UK DFID, NATO), + 3 more years 3. Approach: Practical measures, not headlines; integrity AND reducing corruption risk; make the subject explicit; strengthen integrity, not to shame 4. Working in parallel with governments, companies, NGOs 5. Our aim is threefold: Demonstrate effective improvement measures Leverage small reforms across many countries Catalyse more capacity in academies, NGOs.

6 Part 1 - General Overview Understanding Corruption Measuring Corruption Why Care? Corruption in Defence Part 2 - Some Specific Issues Corruption Typology International Practices Bribery / Extortion Offsets Conclusions & Tools/Proposals

7 Understanding Corruption Definition: The abuse of entrusted power for private gain. Corruption is globally understood: seems not to be cultural. Reluctant tolerance where it is endemic.

8 The power of transparency - example Tracking education spending in Uganda equiv. US$ per student Public info campaign Intended grant Actual grant received by primary school (means) Source: World Bank Institute, Kaufmann et al; Uganda Public Expenditure Tracking Surveys

9 Measuring Corruption Corruption Perception Index Transparency International (2010) Top 20 Bottom 20 Denmark, New Zealand, Singapore, Finland, Sweden, Canada, Netherlands, Australia, Switzerland, Norway, Iceland, Luxembourg, Hong Kong, Ireland, Austria, Germany, Barbados, Japan, Qatar, UK, Kenya, Laos, Papua New Guinea, Russia, Tajikistan, Democratic Republic of Congo, Guinea, Kyrgyzstan, Venezuela, Angola, Equatorial Guinea, Burundi, Chad, Sudan, Turkmenistan, Uzbekistan, Iraq, Afghanistan, Myanmar, Somalia

10 Measuring Corruption World Bank Control of Corruption

11 Why care? Countries Waste of scarce resources, (Is it %?) It impacts operational effectiveness, It reduces public trust in the armed forces, Defence corruption can be easy; and a target for politicians, re-election funds and reward for favours, International companies shun/avoid corrupt economies. Businesses Severe reputational damage, Criminal penalties (with unlimited fines), Blacklisting or restrictions on future bidding with certain countries (eg the USA)/organisations See Chapter 10 box in the handbook. Corruption in defence is a strategic issue.

12 Corruption in Afghanistan NEED Endemic in daily life, Social fabric fracture, Low quality of public services, Soup of the day! $1-2bn p.a. GREED Siphoning aid funds, Narcotics trade, Siphoning contracts, Patronage, Trading positions, contracts, Theft of national assets. $5-10bn p.a.

13 Afghan Public Perception Surveys In your view, what is the biggest problem facing Afghanistan as a whole? Comparison between 2006, 2007 and 2008 (Asia Foundation 2008)

14 UN View of Afghan Corruption Most important problems in Afghanistan (UN Office on Drugs & Crime 2010) Is it contradicting?

15 Percent Industry choosing not to bid Reasons for Companies Not to Bid Corruption Human Rights Labour Environment Source: Control Risks Survey, December 2006

16 Corruption in Defence Surveys of citizens military well regarded Best Worst Level of perceived corruption

17 Corruption in Defence Surveys of businesses - defence as one of the most corrupt sectors

18 Defence Companies and Business Conduct - Developments in Europe Ad-Hoc Committee Lord Robertson US Companies EU Companies Transparency Int l European Companies developing international Anti-Corruption standards Coordinated by ASD Transparency International defence work

19 Lord Robertson, TI and the Ad-hoc Defence Companies Committee Purpose: Collaborative action to raise international anti-corruption standards in defence sales Initiated by TI in Has met 4 times to date Chair is Lord Robertson, former Secretary General of NATO Brings together US and European companies: US: AIA, Lockheed Martin, Raytheon, Northrop Grumman, Boeing, Rockwell Collins, and others EU: ASD, EADS, Thales, BAES, Finmeccanica, Dassault, Saab, Ruag, Thyssen, Rolls Royce, MBDA, Kongsberg, Agusta Westland, VT, SBAC Led to the European ASD initiative; launched 2006 Reflects the common will of the companies to raise standards

20 Defence Companies and Business Conduct - Developments in Europe Ad-Hoc Committee Lord Robertson US Companies EU Companies Transparency Int l Woolf Committee and BAE Systems European Companies developing international Anti-Corruption standards Coordinated by ASD Transparency International defence work

21 Woolf Recommendations 23 Recommendations. Broader interest: Offsets - due diligence of the agents and of the contracts required, encourage greater transparency by governments Stop facilitation payments as matter of global policy Pro-active approach to internal investigations and disclosure to the authorities Board should publish independent external audit of ethical business conduct within 3 yrs and regularly thereafter Observations on need for more engagement on business conduct by government (Defence, Industry Ministries)

22 Defence Companies and Business Conduct - Developments in Europe French Defence Companies Forum IFBEC Ad-Hoc Committee Lord Robertson US Companies EU Companies Transparency Int l Woolf Committee and BAE Systems UK Defence Companies Forum European Companies developing international Anti-Corruption standards Coordinated by ASD Transparency International defence work

23 IFBEC International Forum on Business Ethical Conduct Formed from an alliance of AeroSpace and Defence Industries Association of Europe (ASD) Aerospace Industries Association of America, Inc (AIA) First meeting January 2010 Purpose: Encouraging extensive exchange between the industry, policy makers, customers and civil society, Fostering a level-playing field among all exporting companies, first for companies on both sides of the Atlantic and then more globally, Demonstrating the aerospace and defence industry s true commitment to ethical business conduct.

24 TI s Practical Reform Agenda 1. Raising the transparency of the defence policy and defence budget 2. Making a sound diagnosis of the corruption and integrity issues 3. Developing a defence integrity and corruption risk action plan 4. Making the subject discussable 5. Engaging civil society 6. Engaging the defence contractors 7. Setting clear standards of business conduct for officials and officers 8. Using surveys and metrics to monitor performance 9. Establishing dedicated integrity training modules 10. Using independent monitors on public procurements 11. Raising the transparency of offsets 12. Procurement directorate reforms

25 Part 1 - General Overview Understanding Corruption Measuring Corruption Why Care? Corruption in Defence Part 2 - Some Specific Issues Corruption Typology International Practices Bribery / Extortion Offsets Conclusions and Wrap-Up

26 Diagnostic - Defence Corruption typology POLITICAL CONTEXT and CONTROL PROCUREMENT OTHER PROCESSES & FUNCTIONS DEFENCE POLICY not approved or published DEFENCE BUDGETS not transparent or debated LEADERSHIP Appointments, Accountability ORGANISED CRIME CONTROL OF INTELLIGENCE EARMARKS, NATIONAL CHAMPIONS NATIONAL, REGIONAL CONTEXT WRONG PRODUCT PRODUCT INCORRECTLY Specified or Evaluated SINGLE SOURCE COLLUSIVE BIDDERS AGENTS/ BROKERS FINANCING PACKAGE SUBCONTRACTORS SELLER INFLUENCE OFFSETS SALARY CHAIN PROPERTY SALES PERSONAL CONTROL OF SECRET BUDGETS OTHER INCOME SOURCES PRIVATE BUSINESSES REWARD, PROMOTION, DISCIPLINARY CONSCRIPTION SMALL BRIBES

27 European Practice The Common Industry Standards No-corruption commitment Active compliance Programme Tone at the top 1. Compliance with laws and regulations 2. Extent of application - through to subsidiaries and affiliates 3. Prohibition of corrupt practices 4. Gifts and Hospitality 5. Political Donations and Contributions 6. Agents, consultants and intermediaries 7. Integrity Programmes 8. Sanctions Five pages, detailed text on agents (due diligence, agreements, etc)

28 Defence Integrity Pacts Introduced by TI as a means of increasing transparency of major, complex defence procurements Now being used routinely across many countries Usually contains three parts Short contract, in which procureres and bidders sign up to specific no-bribery pledges Agreement to an independent monitor Agreement to public transparency over documents and processes Intention: Bring credibility to the procurement process Increase bidder / contractor confidence Increase public confidence

29 UK Bribery Act 2010 Passed by Parliament April 2010, comes into force April 2011 Guidance to be published early 2011 (but plenty on internet now) Latest in a number of specific anti-bribery legislations from around the world: US Foreign Corrupt Practices Act Hong Kong Prevention of Bribery Ordinance Singapore Prevention of Corruption Act plus Germany, Italy, Spain Significantly tougher than US FCPA The message stays clear. When any company circumvents the rules of fair play and honest competition by making improper payments to win business, it will face a strong and united front from law enforcement around the globe Linda Thomsen, Director of the Division of Enforcement at Security and Exchange Commission

30 Broadly drafted offences Bribing another person Receiving a bribe Bribing a foreign public official UK Bribery Act 2010 Corporate failure to prevent bribery Wide application: Individuals; Companies / Partnerships / Associated Persons Where: Anyone for offences committed in UK UK entities for offences committed overseas Reliance on prosecutorial discretion (corporate hospitality, facilitation payments), judged against UK reasonable standards Emphasis on prevention adequate procedures

31 Gifts and Hospitality Discuss!

32 Facilitation Payments Small, unofficial payments made to secure or expedite the performance of a routine or necessary action to which the payer has entitlement. Key problem areas are ports / customs / traffic police Regulations vary. Payments permitted in, for example, USA, Canada, Australia but not under the UK Bribery Act. Need a consistent global policy of zero tolerance (eg Woolf recommendation for BAE Systems) Need to recognise impact of non-payment. Might consider Building in programme slippage Not penalising managers whose schedules slip because of non-payment

33 Offsets Compensation practices required as a condition of sale/purchase Direct offsets: Contractual arrangements that involve defence articles and services referenced in the sales agreements for military exports Indirect offsets: Articles and services unrelated to the defence items or services in the sales agreement (example: marble statues)

34 Offsets facts and figures Offsets started after Used almost exclusively in defence deals Most countries require 100% offsets. High is Austria (174%), Netherlands (118%). Low is Taiwan (20%), Thailand (27%) Most offsets are indirect (60% vs 40% direct) Offset demands are increasing (103% in 2005, 49% in 1993) General economic assessment: largely ineffective over the long term and have minimal lasting impact on economic or military capability Offsets estimated to increase sales price by some 15-30% Direct offsets very rarely work

35 Offsets are a significant corruption risk The issues 1. Can divert attention 2. Get less attention than main contract 3. Have unclear status in the evaluation 4. Multiple opportunities for individual reward 5. Poorly controlled 6. Happen later than contract award General risks 1. Improperly influencing the need for a capability 2. Influencing the competitive decision in improper ways 3. Allowing favours to be repaid Risks for the government Risks for companies

36 Offsets TI s experience so far - specific corruption risks 1. Unclear evaluation mechanisms 2. No clear national strategy on what the offset strategy was to achieve 3. Often more than one Ministry involved - mixed objectives 4. Offset negotiations only after contract award 5. No oversight mechanisms 6. Inadequate or no penalties for non delivery 7. Nothing published; no annual report 8. No follow up audits 9. Options were much too diverse

37 Offsets - much stronger controls needed 1. Offset contract to have same attention as main contract 2. Require tender prices with and without offsets 3. Set up dedicated team to deal with offsets specification 4. Insist on clear pre-award commitments 5. Stronger due diligence required on offset brokers and on ownership of companies receiving offset money 6. Set formal offset evaluation criteria 7. Publish the evaluation criteria and the evaluation 8. Separate the offset obligation from the main evaluation 9. Require independent monitoring and evaluation 10. Require a public progress report each year 11. Require a post implementation audit of the offset outcome and who benefited Need a much better understanding of how to achieve proper transparency

38 o o o o o So. we care.. Defence corruption can be easy Waste of scarce resources Reduces public trust Severe reputational damage to companies Criminal penalties (with unlimited fines) good progress.. Rising interest / engagement by defence businesses Practical and implementable reforms Improved regulation but Plenty of corruption ongoing Not yet a strategic issue

39 Some practical proposals & tools

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45 Thank you Ufuk Batum Defence team contact: