September 2006 RECENT MULTILATERAL MEASURES TO COMBAT CORRUPTION Cecil Hunt * Prepared for the American Law Institute-America Bar Association Program Going International: Fundamentals of International Business Transactions Washington, D.C., December 7-9, 2006 Readers will either already be acquainted with the U.S. Foreign Corrupt Practices Act of 1977 or will be able to refer to a large body of writing on the subject. U.S. business has learned to live with the FCPA. Let us therefore turn attention to developments on the international front during the past decade that may well prove to have an impact far greater than that of the FCPA and that will need to be taken into account in the conduct of business. First, I shall list in chronological order the anticorruption conventions that emerged during this period and note their status. I focus on legally binding instruments and bypass many hortatory multilateral guidelines and statements of principle on the subject. I do not attempt a full description of these conventions. My brief and selective coverage is intended to provide a general sense of the status and significance of the agreements. KEY AGREEMENTS The Inter-American Convention against Corruption. This product of the Organization of American States was opened for signature in March of 1996 and entered into force in March of 1997. Nearly all American states (thirty-three), including the United States, have ratified or acceded to the Convention to date. ( OAS Convention ) The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Adopted in November 1997 by the thirty member states of the Organization for Economic Cooperation and Development, including the United States, plus Argentina, Brazil, Chile, and Bulgaria, the Convention entered into force in February 1999. ( OECD Convention ) The Criminal Law Convention on Corruption. This is a product of the Council of Europe, adopted in January 1999 and entered into force in September 2002. It was signed by most European states (Western and Eastern), plus Mexico and the United States. Several signatories have yet to ratify, among them France, Germany, Japan, and the United States. An Additional Protocol to this Convention, agreed to in April 2004, and entered into force in February 2005, extends the scope of the Convention to arbitrators and jurors to complement @ Cecil Hunt 2006 * Harris, Wiltshire & Grannis LLP, Washington, D.C.
provisions aimed at judicial corruption. ( CoE Convention/Criminal ) The Civil Law Convention on Corruption. Also a Council of Europe project, this is a pioneering agreement that requires parties to provide remedies in their laws for persons who have suffered damage from acts of corruption. The Convention entered into force in November 2003. Only European countries are signatories to date, and almost all ratifications are by Central or Eastern European or Nordic states. ( CoE Convention/Civil ) The African Union Convention on Preventing and Combating Corruption. This was adopted by the African Union in July 2003. It is open for signature by AU member states. The Convention will enter into force following deposit of the fifteenth instrument of ratification. By mid-2006, twenty-six states had signed the Convention, but only six had ratified or acceded. ( AU Convention ) The United Nations Convention against Corruption. The Convention was opened for signature in December 2003. The Convention entered into force in December 2005. Through September 2006, 66 signatories had ratified or acceded to the Convention. These countries include France, and the United Kingdom. The United States Senate gave its consent to ratification on September 15, 2006.. As Asia has no regional anticorruption convention, it is noteworthy that the U.N. Convention presents the prospect of a broad group of Asian states becoming parties to a multilateral anti-corruption treaty for the first time. (OECD member states Australia, Japan, Korea, and New Zealand are parties to the OECD Convention.) Many Asian states have signed the U.N. Convention. Asian ratifications to date include the People s Republic of China and Indonesia, but not Japan, the Philippines, or the Republic of Korea. ( UN Convention ) THE BROADER FRAMEWORK As important as the above-noted international agreements may be or become in the fight against corruption, they form only one part of the system needed to address the challenge. The larger picture includes a variety of international and domestic initiatives that are not specially connected with anticorruption measures. One vital area involves measures to facilitate the location and recovery of the fruits of crime, whether that crime be official corruption, narcotics trafficking, or other illegal activity. Domestic legislation and international agreements on money laundering and bank secrecy are of particular importance in this connection. Another area of concern demanding and receiving attention encompasses transparency and procedural safeguards for governmental procurement, including measures taken by the international financial institutions. On the enterprise side of the matter, provisions on corporate governance and accounting are part of the anti-corruption legal effort, as they have been for years in the U.S. Foreign Corrupt Practices Act. Finally, there is a growing body of treaties and arrangements that deal with international cooperation in law enforcement that could be instrumental in detecting and punishing corruption crimes. It is beyond the scope and purpose of this article to attempt a comprehensive presentation of the many measures that can support or supplement the listed anticorruption conventions. What I will do is simply to cite to the remarkably broad and useful website of the 2
organization Transparency International www.transparency.org. This non-governmental organization, founded barely ten years ago, has become a forceful advocate for anticorruption agreements and measures and a productive supporter of fact-finding and education in the area of civic integrity. SCOPE AND FEATURES OF CONVENTIONS Public and Private Sectors. All of the cited conventions require that parties outlaw corrupt payments to public officials. The CoE/Criminal, CoE/Civil, and AU conventions extend to bribery in the private sector. The UN Convention provides, with respect to private sector bribery and embezzlement, only that states parties shall consider adopting laws against such activity. There are differences (and some ambiguities) in the extent to which the conventions extend beyond a narrow scope of government officialdom to cover bribery of political party officials or of state owned enterprises. Domestic and Foreign. With the exception of the OECD Convention that applies only to bribery of foreign public officials in international business transactions, each of the cited conventions requires parties to act against both domestic and, where there is jurisdiction, foreign bribery. I omitted from the list the European Convention on the Fight Against Corruption Involving Officials of the European Communities or Officials of Member States because it is more akin to domestic anti-bribery legislation. Illicit Enrichment. Several of the conventions go beyond bribery and corruption and call for action against illicit enrichment. The OAS Convention defines this as a significant increase in the assets of a government official that he cannot reasonably explain in relation to his lawful earnings during the performance of his functions. In its instrument of ratification, the United States included its understanding that it is not obligated to establish a new criminal offense of illicit enrichment, expressing constitutional concern with placing the burden of proof on the defendant and noting that U.S. financial disclosure and tax laws deter or punish such conduct. Tax Deductibility. The UN Convention is the only one of the listed conventions that mandates the disallowance of deduction of bribes of either foreign or national officials. The OAS Convention calls upon states parties to consider denying favorable tax treatment for expenditures in violation of their anticorruption laws. Asset Recovery. The OAS, AU, and UN conventions contain provisions for the freezing and forfeiture of assets derived from covered offenses. These range from a brief and general article in the OAS Convention to ten articles in the UN Convention that cover various aspects of the subject, including fairly detailed provisions dealing with international cooperation for confiscation and recovery of assets. Mutual Legal Assistance and Extradition. Each of the listed conventions deals to 3
some extent with the subjects of extradition and international legal assistance. These features range from brief, but strong, articles in the OECD Convention to the multiple articles in the UN Convention that go beyond the typical treatment of enforcement cooperation to require states parties to consider steps such as joint investigations and the transfer of criminal proceedings. Monitoring and Follow-Up. One important aspect of the approach taken by Transparency International has been the detailed surveys that it has sponsored on the state of corruption in specific countries. It is significant (and, perhaps, not coincidental) that mechanisms for fact-finding and reporting have been introduced in recent years for monitoring the implementation of and compliance with international anticorruption agreements. A pioneer in official monitoring is GRECO, the Group of States against Corruption. GRECO was launched in 1999 under the auspices of the Council of Europe. GRECO s function is to monitor, through a process of mutual evaluation and peer pressure, the observance of the Council of Europe Guiding Principles in the Fight against Corruption and the implementation of the CoE Convention/Criminal and the CoE Convention/Civil. The OECD Convention requires parties to cooperate in a follow-up program. The OECD Working Group on Bribery began Phase I (review of implementing legislation) in 1999 and Phase II (visits to capitals to monitor implementation and enforcement mechanisms) in 2001. The AU Convention also contains what appear to be fairly robust follow-up provisions, including an advisory board of experts to conduct fact-finding and to which states parties are to report annually on implementation. Most parties to the OAS Convention participate in the Follow-up Mechanism for Implementation [of the Convention], that is similar to that for the AU Convention. In contrast, many of the provisions in the UN Convention on follow-up are hortatory or qualified, and the establishment of monitoring procedures is deferred to later action by the Conference of States Parties. PROSPECTS We have just seen a decade of remarkable international activity aimed at combating official corruption. Nonetheless, participants in global business operations, having observed the limited impact and enforcement of the domestic anticorruption laws that have already been on the books in nearly all countries, may understandably be skeptical as to prospects for any early and dramatic change in the business environment. The coverage of these agreements is currently spotty, as not all are in force and not all signatories have ratified. Moreover, it will take some time for states that do not already have the legislation called for by a convention to enact such legislation. Once these laws are on the books, it will still take concern and competence on the part of local authorities to achieve effective enforcement. Is there some reasonable basis for believing that a significant change for the better is in prospect? I believe that there is, even if widespread and meaningful reform must remain a distant goal. I shall note very briefly some factors that favor progress. These new international agreements reflect a significant political commitment that was missing until just a few years ago. The new monitoring mechanisms can serve to keep the issues in the international political spotlight. However diplomatically framed the compliance 4
reports may be, they are likely to provide a means for shaming a state into better compliance. The legal assistance provisions can give the government of a bribed official new means for bringing both the bribe-taker and a foreign bribe-giver to justice. The prospect for the tools of international cooperation being used to recover the proceeds of bribery could be a strong incentive for the corrupt official s government to act. New players may reinforce or goad the anticorruption efforts of governments. I have already mentioned Transparency International. This and other nongovernmental organizations are working with officials and private citizens in both developed and developing countries to strengthen reform efforts. Techniques include watch-dog activity and measures to protect whistle-blowers. The international financial institutions are also new players in a sense, as they have worked in recent years to strengthen procedures to enhance the integrity of project financing and related procurement. THOUGHTS FOR BUSINESS This segment will be even briefer and more selective than the rest of this article. It would not be surprising to find that an American company believes that the new international anticorruption agreements will not make it necessary to change its policies and procedures designed to ensure the integrity of its books and to prevent illicit payments. This company would expect that a compliance program that is built on the FCPA enshrines the highest ethical standards and requires compliance with local law in each country in which it does business would suffice. Perhaps this would be so, or close to being so, but the belief should be examined. For example, is the company s program fashioned so exclusively on the FCPA that it bases facilitating payment guidance solely on the 1998 amendments to that act that arguably cover a narrower range of payments than do the foreign laws under one or more of the conventions? Does the company have exposure because its compliance program deals only with the jurisdictional reach of the FCPA and is inadequate to address the more demanding compliance environment in which its overseas subsidiaries and joint ventures operate? The emerging body of international agreements and national laws may provide useful weapons for the company that has been injured by a competitor s corrupt activity. The treaty obligations of foreign governments may make it possible for the company s home government to do more than just jawbone in protest. Additionally, new laws may give an injured company a right of private legal action, the means for gathering evidence abroad and obtaining other assistance in pursuing its case, and, ultimately, for obtaining a recovery from assets that would heretofore been out of reach. WHY TRY? This is a difficult area for reform. Disappointments are certain and victories are likely to be partial. The problem, however, demands the effort. I shall invoke the words of United Nations Secretary General Kofi Annan at the signing ceremony for the UN Convention: 5
Corruption hurts the poor disproportionately by diverting funds intended for development, undermining a government s ability to provide basic services, feeding inequality and injustice, and discouraging foreign investment and aid. 6