Tuesday, December 2, 2014
An analysis of the crime of bribery of foreign public officials
Most international bribes are paid by large companies, usually with the knowledge of senior management, according to new OECD analysis of the cost of foreign bribery and corruption.
Bribes in the analysed cases equalled 10.9% of the total transaction value on average, and 34.5% of the profits – equal to USD 13.8 million per bribe. But given the complexity and concealed nature of corrupt transactions, this is without doubt the mere tip of the iceberg, says the OECD.
Bribes are generally paid to win contracts from state-owned or controlled companies in advanced economies, rather than in the developing world, and most bribe payers and takers are from wealthy countries.
The OECD Foreign Bribery Report analyses more than 400 cases worldwide involving companies or individuals from the 41 signatory countries to the OECD Anti-Bribery Convention who were involved in bribing foreign public officials. The cases took place between February 1999, when the Convention came into force, and June 2014.
Almost two-thirds of cases occurred in just four sectors: extractive (19%); construction (15%); transportation and storage (15%); and information and communication (10%).
Bribes were promised, offered or given most frequently to employees of state-owned enterprises (27%), followed by customs officials (11%), health officials (7%) and defence officials (6%). Heads of state and ministers were bribed in 5% of cases but received 11% of total bribes.
In most cases, bribes were paid to obtain public procurement contracts (57%), followed by clearance of customs procedures (12%). 6% of bribes were to gain preferential tax treatment.
The report also reveals that the time needed to conclude cases has increased over time, from around two years on average for cases concluded in 1999 to just over seven today. This may reflect the increasing sophistication of bribers, the complexity for law enforcement agencies to investigate cases in several countries or that companies and individuals are less willing to settle than in the past.
In 41% of cases management-level employees paid or authorised the bribe, whereas the company CEO was involved in 12% of cases.
Intermediaries were involved in 3 out of 4 foreign bribery cases. These intermediaries were agents, such as local sales and marketing agents, distributors and brokers, in 41% of cases. Another 35% of intermediaries were corporate vehicles, such as subsidiary companies, companies located in offshore financial centres or tax havens, or companies established under the beneficial ownership of the public official who received the bribes.
Governments around the world should strengthen sanctions, make settlements public and reinforce protection of whistleblowers as part of greater efforts to tackle bribery and corruption, says the OECD. The overwhelming use of intermediaries also demonstrates the need for more effective due diligence and oversight of corporate compliance programmes, and for company executives to lead by example in fighting foreign bribery.
The OECD Foreign Bribery Report seeks to illustrate the crime of foreign bribery in real terms. It ‘measures’, for the first time, the crime of transnational corruption based on analysis of data emerging from foreign bribery enforcement actions concluded since the entry into force of the OECD Anti-Bribery Convention in 1999.
Now that foreign bribery is illegal in many countries, the even greater challenge is to effectively investigate and prosecute this crime when it occurs. Often involving a series of offshore transactions, multiple intermediaries, complex corporate structures and evidence located abroad, successfully detecting, investigating and sanctioning foreign bribery requires expertise, time and co-operation.
The OECD Foreign Bribery Report, allows us to better understand the ‘who, what, where, why, and how’ of foreign bribery. It goes against some of our preconceived notions about this crime. For the first time, this report measures and describes transnational corruption with reference to actual cases, rather than with statistics derived from econometrics, perception surveys or unsubstantiated allegations.
It aims to assist the OECD Working Group on Bribery and the G20 Anti-Corruption Working Group in their efforts to combat transnational corruption. The analysis will also enable governments, companies and civil society to better understand and combat this insidious crime.