Article 34 of the UN Convention Against Corruption (UNCAC) generally requires that each State Party “take measures … to address the consequences of corruption.” In recognition of the fact that government contracts and licensing processes have been among the areas most prone to corruption and bribery–and of the fact that the threat of criminal punishment may not be a sufficient or even viable deterrent to such corruption–UNCAC Article 34 further declares that “States Parties may consider corruption a relevant factor in legal proceedings to annul or rescind a contract, withdraw a concession or other similar instrument or take any other remedial action.” Although that second sentence of Article 34 is not mandatory, State Parties–particularly demand-side countries with an unfortunate reputation for corruption in government contracting (such as Kenya, Guinea, Indonesia and Philippines) should adopt that principle into their national laws.
Law providing for the nullification of contracts or concessions procured through corruption would be a strong deterrent to bribe-paying by firms. Although such bribery is already illegal, in some cases criminal punishments are simply insufficient to deter corrupt practices conducted in demand-side countries. Often the threat of sanctions is low, and even though some companies have been hit with substantial sanctions, this loss has been mitigated by the profits acquired by the operation of the tainted contract or license. And a company might think twice before acceding to a bribe demand from a lower-level public official (or even a high-level official) if the company knows that, by paying the bribe, they may be putting the whole contract in jeopardy if the government later decides it wants to reneg on the deal. Moreover, if a demand-side country were to adopt a law that allows for nullification of any government contract or concession procured through corruption, it would send strong signals to that international community that this country will no longer tolerate these corrupt practices.
Of course, as with any legal reform, there are legitimate concerns about adopting the second sentence of UNCAC Article 34, but these can usually be addressed:
- First, a law allowing for nullification of tainted contracts might well create heavy workload for the agency or court responsible for assessing these cases. This implies that countries will need to invest in capacity building prior to full adoption of such a law.
- Second, when a country amends its anticorruption law to create a legal basis for rescission of tainted contracts or licenses, the country must ensure that all contracts and licenses are subject to this regulation, and the country’s anticorruption enforcers must be consistent in assessing every government-related contract and license, so as to prevent any unfair or political bias.
- Third, the law should mandate that each individual contract or license proceeding disclose clearly and in advance that corruption is grounds for rescission of the contract or revocation of the license. This would prevent companies from being able to bring State-Parties before arbitration due to rescission of tainted contracts or corrupted licenses, such as what happened in Guinea.
- Fourth, although countries should fully adopt Article 34’s recommendation for future contracts or licenses, this rule should not be implemented retroactively. Retroactive application, particularly in a country where bribery has been pervasive, would be too disruptive and costly, as it might entail undoing hundreds of contracts and licenses.
Admittedly, adopting the recommendation in the second sentence of UNCAC Article 34 might seem unrealistic in demand-side countries where it has historically been almost impossible to facilitate a business deal without bribing a public official. This is probably why, in reality, most of UNCAC’s State Parties have not adopted this recommendation. But when it comes to combating corruption, countries must be dynamic, progressive and proactive in finding a set of laws that would best support their anticorruption strategies. Article 34 suggests one powerful, promising approach. If enforced effectively, it may not only increase deterrence, but change the culture of corruption that so often surrounds government contracting and licensing.