Antibribery Policy: A Checklist

That a law against bribery is the keystone of any serious fight against corruption goes without saying. What isn’t said is that an antibribery law is only the keystone. That just as an arch consists of more than its center stone, a robust, effective antibribery policy takes more than a law criminalizing bribery.  Below is my checklist of what else is required. Reader comments solicited.

My list starts with a careful review of the antibribery law itself. For as the United Nations Office on Drugs and Crimes reported in 2017, many nations’ law have gaps that make it easy for bribe takers and payers to maneuver around it unscathed; others contain ambiguities that leave it to the courts to say what is and isn’t a bribe.

1) Scrub the current antibribery law.  A common gap UNODC reports is the failure to cover “indirect” bribery. The laws of several countries give bribers and takers a pass if a third party is involved. If instead of the company seeking a public contract or tax exemption pays an official for the desired outcome a third party does, there is no crime. Likewise, in many states if the payment goes not to the official but to say his or her child, no crime is committed. There were also states where bribery laws do not reach employees of state-owned companies or part-time government employees.

Ambiguity arises because not every action a public servant takes in return for payment by a private source is a bribe. Only those that are “official actions.” But what’s an official action. The American Supreme Court recently said a chief executive of an American state making appointments for a businessman with his underlings was not engaged in an official action (here). A controversial decision (here) that shows how cautious U.S. judges are when deciding what is a bribe when elected officials are involved. In other nations, the risk may be judges too anxious to impose their own norms on political behavior.  

Another area where politics and bribery meet is private donations to candidates for political office. When is what is on its face a lawful campaign actually a bribe? The American Supreme Court has twisted itself into knots trying to determine where Congress drew the line between a political contribution and a bribe (here and here, analysis here).   

Surely the knottiest questions arise over the trade of political favors. Vanuatu’s highest court has ruled it is not bribery when a prime minister offers parliamentarians positions in his government in return for their opposition to a no confidence vote (here). On the other hand, it has held that offering parliamentarians low-interest loans to fund constituent support work in return for a yes vote on a no confidence motion is (here). The court found the former was “a long and enduring process” in Vanuatu and other parliamentary systems that contributed to government stability while the latter fell easily within the statutory definition of corrupt.  A sensible distinction perhaps, but do lawmakers want to hope their courts will be as sensible?

When is a citizen guilty of bribery for paying an official to do what the official is legally required to do? The question of when the victim of extortion is her- or himself a criminal has vexed commentators and lawmakers literally for millennia.  In some countries the victim can be prosecuted on the theory he or she subverted a legitimate government process. In the United Kingdom, a victim can raise the defense of duress or necessity (here). Where lawmakers want to encourage whistleblowing, they might want to broaden the defense to ensure extortion victims will come forward without fear of legal repercussions.   

2) Allow government to recover of damages for bribery. Bribery severely damages the state. A paper in process for StAR finds few nations where the state or indeed others harmed by bribery have collected damages. What accounts for the lack of compensation?  What changes are required to see that damages can be recovered?

3) Create a task force to investigate and prosecute bribery. The antibribery laws are not self-enforcing.  Nor, unlike laws against theft or assault, do they generate a complaining victim demanding action.  Cases are opened by law enforcement personnel in response to anonymous tips or rumor. 

Where bribery is a problem (and where isn’t it?), a task force should be created to bring cases. That task force should be subject to strict guidelines to protect innocent officials from the stain of a false or erroneous accusation. It is as important that an investigation without a real foundation be quickly closed as that one where there is reason to believe a bribe was paid progresses. Task force members need specialized training to ensure they determine as soon as possible when to close and when to accelerate an investigation. Oversight by very senior, experienced law enforcement personnel is critical.

4) Initiate integrity testing. An integrity test is where a law enforcement agent pretends to be a businessman and offers an official a bribe, ideally recording the offer so that evidence of the official’s reaction can be easily and credibly assessed. A select group of task force members should be trained in how to conduct. The first step is to prepare an analysis of domestic law identifying what undercover law enforcement personnel can and can’t do when testing an official’s integrity. That is, when the courts will rule that the official was “entrapped” or “enticed” into taking a bribe as opposed to when the official took an advantage of an opportunity that presented itself. If current law is too restrictive to be effective, amend it. (See this UN document for a discussion of best practice.)

5) Revise the financial disclosure law. Laws requiring officials to report their income, assets, and other details of their personal finances should cover not only high-ranking personnel but those in positions where the risk of bribery is high (procurement, tax and customs, permits and license issuance). Require the disclosure of gifts over a certain amount from anyone except close family members; clarify that property of which the declarant is the beneficial owner or has the regular use must be disclosed. Make the penalty for nondisclosure or a false disclosure equal to that for accepting a bribe; make lying to law enforcement during an investigation of the accuracy of the declaration a serious crime with a penalty equal to that for accepting a bribe.

6) Require or provide incentives for businesses anticorruption compliance programs. While the list of countries requiring or strongly encouraging businesses to have an anticorruption compliance program is growing, it still is less than a quarter of all UNCAC state-parties (here). For states with limited enforcement capacity, the enactment of such law should be a priority. It shifts some of the burden to potential sources of bribery, sources often with more funds to act than the national authorities. States might even want to go as far as the U.K. and make it a crime for a corporation not to prevent bribery.

7) Give businesses and consumers a right to recover damages for bribery. Paying a bribe to win a contract or keep or renew a contract is an unfair method of competition. The competition law should be clear it is.  A competitor of the bribe-payor suffers damages from the payment of the bribe – lost profits from a contract it would have won but for the bribe. Even where the competitor cannot show it would have won the contract, it should be entitled to recover damages of some fixed amount – say the costs it incurred in preparing a bid or making an offer. If several firms competed with the bribe-payor, each should be entitled to recover. 

Consumers too can be directly injured by corruption. An example is when a company pays a bribe that allows it to raise prices on a product or service whose price is set by government regulation. The right to compensation should extend to bribes paid in the private as well as the public sector. In the U.S., damages are trebled, and attorney fees awarded as an incentive for firms and consumers to bring suit. See the recent settlement of such a suit in Arizona for an example.

As important as a well-drafted law outlawing bribery is, there are many more measures a state can take in addition to reduce the scourge of perhaps the most harmful form of corruption. Why delay?

3 thoughts on “Antibribery Policy: A Checklist

  1. Your latest post in GAB (Antibribery Policy: A Checklist) is spot on. I have the following example to offer:

    Anti-Bribery Convention Misunderstanding

    XYZ Company has stated in its Form 20-Fs for 2018, 2019, 2020 and 2021 that “We regularly review our anti-corruption compliance program to ensure it meets the requirements of the US Foreign Corrupt Practices Act, ……… and the applicable laws and regulatory developments of all places where we do business. These laws are consistent with the standards of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions”.

    Now, while this company and others might explain that they face local or domestic regulations later in their 20-F submission (Under Risk perhaps?), the opening statement that is read by a “reasonable investor”, is the one above. Moreover, a “reasonable investor”, based on the statement above, might conclude that other regulations and laws, mentioned under risk, are consistent with the “OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.”

    At best, XYZ Company has created ambiguity/confusion in its 20-F submission, or, at worst, made a misrepresentation to the U.S. SEC, over a four-year period (explained below).

    You will notice that XYZ Company does not say “largely consistent”, “mostly consistent”, “substantially consistent”, or “consistent, with the following exceptions”. Nor does it distinguish between domestic and foreign bribery laws (both are “applicable” from an anti-corruption perspective). XYZ Company makes an affirmative statement that “the applicable laws and regulatory developments of all places where they do business are consistent with the standards of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions”. And, Black’s Law Dictionary (2nd ED) defines consistent as “That which agrees with something else; as a consistent condition, which is one which agrees with all other parts of a contract, or which can be reconciled with every other part.”

    From a hypothetical standpoint, let’s assume that XYZ Company does business in Chile and the Philippines.

    Anti-bribery laws in Chile (Refer to Section 1.2) and in the Philippines (Refer to Section 3, Corrupt Intent), are not consistent with the OECD Convention on Combating Bribery. Meaning, the Chilean and Philippine domestic anti-bribery regulations cannot be “reconciled” with the OECD Convention. A “reasonable investor”, who might read the 20-F, will assume that the OECD Convention outlines all the anti-bribery regulations that govern XYZ Company’s operations globally. They would be wrong.

    The OECD Convention requires, in its definition of bribery, an element of corrupt intent. On page 30 (Section 5) of the OECD Corruption Glossary, the OECD defines bribery as an “intentional offence”. It states, “For the bribery offences, the briber must offer, promise or give the bribe with the intention that the bribed official act or refrain from acting in the exercise of his/her functions or duties, etc.” Essentially, there must be “something for something”, or a quid pro quo.

    The definition of bribery, with respect to one criminal anti-bribery law in Chile, and several in the Philippines, does not require corrupt intent or motive. The mere act of receiving something of value (no intent or quid pro quo) is a criminal violation in certain circumstances, for the giver and receiver (supply side and demand side). So, the definition(s) of bribery in Chile and the Philippines, cannot be “reconciled” with the definition of bribery in the OECD Convention; therefore, they are not “consistent”.

    This also presents a problem for companies like XYZ, who maintain a “truthful reporting” requirement in their Code of Conduct, which prohibit misrepresentations to regulatory agencies.

    The effectiveness of an anti-bribery program is founded on the proper and complete definition of bribery in all jurisdictions where the organization operates. It impacts the entire anti-bribery program, from training to monitoring and compliance. When the definition of bribery in a jurisdiction is misunderstood, by the organization, its agents, and its staff, then the effectiveness of the anti-bribery program is significantly undermined (increasing risk). Moreover, the safety of current and former employees, and their families, can be significantly threatened.

    Also, the XYZ’s Board states in the 20-F that “Having carried out a review during FY…., the Board is satisfied with the effectiveness of risk management and internal control systems.” However, the assumed consistency of the definition of bribery in the 20-F (in two jurisdictions), with the OECD Convention, suggests that this certification is misplaced. The effectiveness of a system cannot be properly assessed, when the definition of bribery is misunderstood.

    Everything included in a 20-F submission should be consistent with every other piece of the submission. It’s an important document that is read by existing shareholders, potential investors, regulatory agencies and other stakeholders.

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