Doing business on an international basis can be a challenging but ultimately profitable venture for corporate concerns. As the forces of globalisation widen the geographical operating theatres of many corporations, business leaders are faced with operating in those environments where different legal considerations are the norm, and where cultural influences (in terms of business conduct) are strong.
Of all the frustrations suffered by many firms, corruption is the most prevalent. The demand for illicit payments to officials, potential business partners and ‘facilitators’ is a frustrating and expensive aspect of conducting business abroad. To a degree, some western nations have encouraged such illegal practices by continuing to allow tax-deductible payments aimed at bribing foreign officials. This is a practice that must be addressed in the strictest terms if a level commercial playing field is to be realised.
Of course, it’s not merely the cost factor that can encourage such behaviour. Frustration over seemingly unending bureaucracy is very often cited as a further problem.
As recently as the middle of last year the US State Department had openly criticised the UK for failing to honour its commitments to the 1998 Organisation for Economic Co-operation and Development’s (OECD) anti-corruption measures.
With the emergence of legally-binding documents including the US Foreign and Corrupt Practices Act, businesses in the Western World are suddenly finding themselves formally legislated in respect of their conduct both at home and abroad.
Are we dragging our heels?
In the past, the UK Government has been accused of dragging its heels on the matter of bribery by UK multinationals overseas. However, the Government has now reflected the lowering of tolerances in terms of accepting such practices by way of the Anti-Terrorism, Crime and Security Act 2001 (Section 101(1) of which clearly states that the nationality of the offerer or the recipient of a bribe is immaterial, as is the fact that an offence may have taken place outside of the UK).
With the subsequent amendment of existing legislation concerning bribery (ie the Prevention of Corruption Act 1906, the Public Bodies’ Corrupt Practices Act 1889 and the Prevention of Corruption Act 1916), the criminality of such practices is now well defined. Ironically, prosecutions since the passing of the 1906 Act have been minimal.
Significantly, the 2001 legislation contains (for the first time) extra-territorial provisions not present in any existing legislation to date. Actually proving that UK nationals or businesses have behaved in contravention of such legislation is a different matter altogether.
If not entirely acceptable, bribery has always been a practice that was tolerated. While the slow change of attitudes towards corruption in target countries has been ongoing for some time now, the terrorist attacks in the US last September certainly provided a new impetus.
The UK legislation concerning the conduct of British firms (and individuals) overseas has been enacted on the back of what started as a response to the atrocities in New York and Washington – and as a direct means of attack on the financial support enjoyed by terrorists and their sympathisers.
Indeed, at last October’s International Anti-Corruption Conference, held in Prague, Czech President Vaclav Havel linked anti-corruption measures with the ongoing fight against global terrorist activity.
Shifting attitudes to corruption have led to other developments. Last November, for example, it was reported that the German Minister for the Interior had suggested the establishment of a centralised corruption register in order to address the bribery issues related to the award of public service contracts. It doesn’t take a great deal of imagination to realise that – given the current climate regarding EU expansion in terms of legal, crime prevention and anti-terrorism issues – such information would be easily accessible to fellow businesses in other EU states.
Responses by the business community towards efforts made to crack down on bribery have been public for some years now. In September 1997, for instance, and in the light of accusations concerning its business dealings in Nigeria, oil giant Shell was at great pains to point out its zero tolerance policy on bribery and corruption. Bizarrely, the same company was also at pains to stress that its previous policy had not been lax in any way.
A pre-emptive strike in the face of potential questioning, perhaps?
Problems, or not? Officially official…
The US Foreign and Corrupt Practices Act rightly prohibits payments to officials with "corrupt intent", even if those payments are made through an intermediary. All well and good, but how does the security professional or investigator draw the line between limited payments made to a foreign Government representative or a crook (particularly if the company representative concerned has little or no experience of operating in that country)?
Some clues are offered in the Foreign and Corrupt Practices Act, which lists exceptions as actions to "a foreign official, political party, or party official" to "secure the purpose of a routine Governmental action". Circumstances include obtaining official permits and/or other official documentation, the processing of Governmental papers (including visas), the provision of police protection, mail pick-ups (and similar), the provision of telephones, power and other utilities, the loading/unloading of perishable commodities and the ominous "actions of a similar nature". The latter could be seen to be a ‘catch-all’ or ‘avoid-all’ depending upon your interpretation!
The Foreign and Corrupt Practices Act does state that, where a payment is made or a gift presented (and is legal under the written laws of the country in which the act takes place), such an activity would be subject to what’s known as the ‘foreign compulsion offence’. Cynics might state that a corrupt regime could ensure that the written regulations exist for the purpose of ensnaring foreign investment.
Here in the UK, sticky questions in the House of Commons followed on from allegations that British aid money had been used as a ‘sweetener’ for arms sales (we’re talking about the Pergau Dam affair, of course).
If it’s the Government that is the ‘offerer’, is it still classed as an act of bribery? In this instance it was probably immaterial – at the time, it was still legal under UK law to bribe foreign officials and Governments (despite an illegality if the same ‘offence’ were to be committed in the UK itself).
Another tricky issue is the offer (and acceptance) of corporate hospitality. Where does it cross the line and become an act of bribery? Is it commensurate with the role and responsibilities of the person being offered the hospitality? Should the donation of a bottle of whiskey to a customs officer be on a par with lavishly-funded dinners and holidays bestowed upon senior ministers? These are questions that remain unanswered.
Caught in the bribery trap
In October last year, BBC executive Jeff Taylor was arrested in Hong Kong and placed under investigation for his alleged involvement in a bribery case highlighted by the acceptance of illegal commissions in return for the award of contracts to certain suppliers. This shows that foreigners are indeed liable to investigation over such allegations. The thought of spending any time in a foreign jail is bad enough, but consider the penalties. Chinese officials, for example, regularly apply the death penalty to nationals convicted of corruption.
The US applies less ‘final’ penalties for any violation of its Foreign and Corrupt Practices Act, but even so they are significant. Allowances are made for both criminal and civil action to be taken against transgressors.
While the statue of limitations is ordinarily five years’ imprisonment for both criminal and civil offences, a recent ruling by the Ninth Court of Appeals stated that it would be contrary to public opinion to be bound by such limitations. Criminal penalties range from $2 million ‘per incident’ to fines of $250,000 (or up to twice the gross gain or gross loss if ‘the defendant derives pecuniary gain from the offence, or causes a pecuniary loss to another person’).
Involve yourself in other activities such as the contravention of tax and money laundering legislation and you will find that you’re accountable for those deeds as well. Being foreign and committing those acts on US soil does not let you off the hook – the Foreign and Corrupt Practices Act will catch out both US and foreign nationals committing these illegal acts if perpetrated on US territory.
Interestingly, German legislation contains similar penalties, but – as was discovered in the illegal party funding scandal – a five-year statute exists. That said, there are other ways around this. A vengeful Government could still think about tax evasion charges with a ten-year limitation!
Corrupt practices serve only to impoverish communities and distort free market economies. They deter inward investment, as well as business deals for the honest company, and can lead to jail sentences and huge fines for active participants. It follows that businesses – and, most importantly, their security managers – must take a long, hard look at their own corporate reputations.
What next? Heading for safety
Anti-corruption compliance has to take precedence in the security policy manual of any UK companies trading on the international stage. This necessity should not be difficult to address if a firm has existing measures in place aimed at dealing with prevailing corporate governance issues.
So what exactly should UK corporate security managers be ensuring when the time comes to address corruption-related corporate governance issues? The OECD’s Anti-Corruption Division suggests that they should:
In a similar vein, the Foreign and Corrupt Practices Act recommends the following as suitable security measures for any company and its shareholders wishing to escape "unscrupulous employees, officers, consultants, distributors and representatives":
There is now a discernible move towards stamping out bribery and corrupt practices. The $64,000 question is whether or not that impetus will continue at the rate it has post-11 September 2001. There are clear indications that the corporate governance and business ethics starting to be put in place will prevail. Anti-terrorism measures remaining on the political agenda would be a big help.
Whether or not some practices will be eradicated overnight remains a moot point. Any Third World country looking in on recent and well-publicised scandals in Western Europe might well ask why they should have to amend their business practices. At the end of the day, though, the elimination of corrupt practices can only be to the benefit of all. Actually imparting that message is often the problem.
Bribery and corruption are rightly recognised as being severely debilitating in terms of their effects on political stability, and their insidious attacks on what are – in some cases, at least – emerging democracies in the so-called ‘new world order’. It’s very much hoped that legislation curtailing bribery and other illicit activities of a similar ilk will be complimentary to the new spirit of corporate governance that’s beginning to emerge.
Just how long it will take for that legislation to be set in stone is anyone’s guess.
