Backgrounder to OECD evaluation of UK's record on combating bribery

Summary

In March 2005, the Organisation for Economic Cooperation and Development (OECD) published an extensive review of how the UK is implementing the OECD's Anti-Bribery Convention and suggested a range of areas in which the UK's efforts to stop bribery are still insufficient. The OECD review was particularly critical of the lack of prosecutions in the UK for bribery of foreign public officials; the lack of clarity over who should deal with enforcement of such alleged crimes; and the lack of resources for the police to investigate and prosecute them. The 83-page review suggested plenty of room for improvement.

This document summarises and analyses the review's main findings.

Contents

• Introduction
• Ongoing lack of comprehensive corruption legislation
• Lack of prosecutions and weakness of enforcement
• Other areas for improvement
• Footnotes

Introduction

On Friday 18th March 2005, the OECD Working Group on Bribery issued its evaluation of the UK's implementation of the OECD Convention on Combating Bribery in International Business Transactions and the OECD's 1997 Recommendation on Combating Bribery. The comprehensive 83-page report looks in detail at the systems in place in the UK for detecting, deterring and prosecuting bribery of foreign officials.

The report is based on an on-site visit in July 2004 and responses by the UK government to an OECD questionnaire. The Lead Examiners conducting the on-site visit consisted of teams of law enforcement personnel, judicial experts and government representatives from relevant ministries in France and Canada.

The report praises the UK for its exemplary transparency, professionalism and co-operation. The report, however, is fairly robust in its findings and recommendations on how the UK could improve its systems. The main areas and concerns the report raises are as follows:

1. Ongoing lack of comprehensive corruption legislation

   1. 1.1 The report states that "there has been no significant progress in the implementation of the conclusions from the Phase 1bis examination [the OECD's examination of the UK's laws that implement the anti-bribery Convention]". This, it says, "gave rise to the lead examiner's concerns about the level of implementation of the OECD Convention by the UK authorities". In its Phase 1bis examination which took place in October 2002,¹ the OECD Working Group on bribery recommended that the UK bring in at the earliest opportunity a comprehensive anti-corruption statute.

   2. 1.2 The report notes that while the UK has now prepared draft corruption legislation, the authorities were unable to indicate when sufficient space in the legislative timetable would be found for enacting the legislation. It calls once again for the UK authorities to enact "at the earliest possible date comprehensive legislation whose scope clearly includes the bribery of a foreign public official".

   3. 1.3 The report discusses several weaknesses with the current anti-corruption legislation, namely that: it is "characterised by complexity and uncertainty"; it does not explicitly cover foreign members of parliament; and it does not explicitly cover third party beneficiaries. The report also discusses weaknesses with current draft legislation, namely that: the person giving the bribe must believe that the official would act 'primarily' because of the bribe if they are to be found guilty; the categories of foreign public officials listed in the OECD Convention are not explicitly mentioned; and the legislation does not explicitly make clear that an offence is committed if done through an intermediary or if an advantage is given to a third party.

   4. 1.4 The report raises concerns that the anti-corruption legislation in the UK does not explicitly mention liability for legal persons. The report notes the difficulties of bringing prosecutions against unincorporated bodies, particularly trusts and partnerships and of establishing the 'directing mind' necessary to prosecute a legal person and particularly large companies. It states that there is "scant evidence of any prosecution of legal persons". It also refers to evidence given to the examiners by the Crown Prosecution Service and the Serious Fraud Office that companies are rarely prosecuted. The examiners recommended that the UK should "broaden the level of persons engaging the criminal liability of legal persons" for foreign bribery offences and adopt "a regime of additional administrative or civil sanctions for legal persons".

   5. 1.5 The report notes that the UK has, however, enacted three important pieces of legislation for fighting corruption: the Proceeds of Crime Act 2002, the Extradition Act and the Judicial Co-operation Act 2003, and the Financial Services Authorities Act 2003.

2. Lack of prosecutions and weakness of enforcement

   1. 2.1 The report states that "it is surprising that no company or individual has been indicted or tried for the offence of bribing a foreign official" in the six years since the Convention was ratified in 1999, particularly given the size of the UK economy and level of its exports to countries with known corruption problems. The Home Office forecast in 2001 that there would be 10-20 investigations and 1-2 prosecutions per year. To date there have been no prosecutions, while there are currently only three investigations underway by the Serious Fraud Office.²

   2. 2.2 The report is very critical of the plethora of investigative bodies that have been involved in dealing with corruption. In particular, it states that "the very large number of investigative bodies has resulted in excessive fragmentation of efforts, lack of specialised expertise, lack of transparency both for the public and investigative authorities, and problems in achieving coherent action". Since April 2004, the Serious Fraud Office began to take a lead role in vetting and investigating bribery cases, a fact that the report welcomes. The report notes, however, that: this role has not been enshrined in the SFO's mandate; the SFO has not received any additional resources to take on bribery cases; and there are ongoing questions about whether the SFO will be able to take on every case after the vetting stage. The report specifically calls for the role of the SFO to be "confirmed and clarified" and for the SFO's performance to be monitored and evaluated "in particular with regard to decisions not to open or to discontinue an investigation".

   3. 2.3 The report is particularly critical of the lack of resources that have been made available for investigating bribery cases. It notes that the SFO in general is under-resourced and that "it is far from clear that [the SFO] has or can call on the resources to conduct or even supervise 10-20 investigations and 1-2 prosecutions a year". It also notes that the SFO cannot conduct investigations without the backing of a police force and that "the absence of dedicated police assets available to assist the SFO ... raises serious concerns that the investigation of such cases may be hampered or even precluded by lack of police support". The report is also critical of the fact that several other parts of the law enforcement apparatus that have an important role to play in assisting with bribery investigations are under-resourced. It notes for instance that "no resources were provided to NCIS [the National Criminal Intelligence Service] to cover its foreign bribery responsibilities". It specifically recommends that the UK authorities "pay due attention to the human and financial resources available" to NCIS to process Suspicious Activity Reports promptly. The report also notes the examiners had concerns as to "the adequacy of resources available in the UK for providing prompt and effective legal assistance" in relation to bribery cases and recommended that the UK authorities "pay due attention to the resources available" to deal with Mutual Legal Assistance requests concerning bribery.

   4. 2.4 The report is critical of the fact that allegations are not being taken up at an early stage. The report states that "cases have been principally failing at the outset rather than at the stage of evaluating a potential prosecution at the conclusion of an investigation". The report suggests that this is a result of:

      1. "the extremely high level of proof that appears to be required to open an investigation into suspicious transactions";
      2. consideration by the UK authorities of the impact of an investigation on the UK economy -- a consideration disallowed under Article 5 of the OECD Convention; and
      3. lack of checks and balances on decisions by law enforcement authorities as to whether to investigate or not.

      The report also suggests that the UK should make more use of investigative tools in the UK to investigate bribery. It notes that the UK authorities seem to focus "relatively little on what investigation could be done in the domestic sphere", emphasising instead the difficulties of getting evidence from abroad. The report suggested that the UK "should make efforts to improve the investigative tools available in foreign bribery cases and to use them more actively".

   5. 2.5 The report expresses concerns over "special rules" for investigating defence contracts and requirements by law enforcement authorities to disclose details of investigations to government departments. The report is particularly concerned about "the appropriateness" of the Ministry of Defence Police (MDP) investigating bribery on defence contracts to which the Ministry of Defence is a party. The report further expresses concerns about the requirements on law enforcement agencies to disclose details of their investigations to the Foreign Office and the Ministry of Defence (where the investigation is defence related). The report considers that such disclosure could be "potentially damaging" and should be "clearly defined and limited". The examiners seemed to be concerned about the potential for such disclosure to lead to breaches of Article 5 of the Convention which stated that investigation and prosecution "shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved".

   6. 2.6 The report expresses concern that the 'public interest' test in the Code for Crown Prosecutors could allow prosecutors to take into account factors that Article 5 prohibits and expressly urges the UK to amend the Code to reflect Article 5. The report also reiterated the OECD's concern that the consent of the Attorney General is required for a corruption prosecution and recommended that the UK reconsider the appropriateness of this requirement.

   7. 2.7 The report also suggests that prosecutors could be making more active use of the provisions in the Proceeds of Crime Act and of the Asset Recovery Agency to pursue confiscation of assets relating to foreign bribery cases.

3. Other areas for improvement

   1. 3.1. Increasing awareness and improving reporting. The report suggests that further training on the OECD Convention and bribery should be given, particularly to staff at the National Criminal Intelligence Service, the City of London Police and to judges. The report also encourages the UK to look at ways of improving disclosure and reporting of bribery offences. It suggests that the government: encourage UK companies to report instances of bribery by competitors to UK authorities; encourage civil servants to report and consider introducing an obligation to report for civil servants; improve protection for whistleblowers reporting direct to law enforcement authorities; and remind tax officials of their ability to report information, and encourage them to pay attention to information which could reveal criminal activity.

   2. 3.2. Accounting and Auditing Standards. The report states that the UK has yet to comply fully with Article 8 of the OECD Convention which includes accounting provisions that require countries to prohibit the establishment of off-the-books accounts and records, and the making of false financial statements with regard to bribery. The report expressed concern about "the adequacy of UK accounting requirements to prevent and detect bribery of foreign public officials". The report also highlighted the fact that company directors are not required to declare whether their company complies with UK law and regulations, whether its internal controls are effective or if there are irregularities in its financial information. The examiners encourage the UK to "proceed diligently" with reforms to the UK accounting legislation and with the adoption of guidance for auditors.

   3. 3.3. The Export Credits Guarantee Department (ECGD) and Department for International Development (DFID). The report recommends that the UK should revisit the policies of both DFID and the ECGD to make sure that their anti-corruption policies "are a sufficient deterrence." In light of the recent changes to the ECGD's procedures, the report also recommends that the OECD's Working Group should follow up on these changes to see if their weakening has reduced the ability of the ECGD to detect and prevent bribery.

   4. 3.4. Overseas Territories (OTs) and Crown Dependencies. The report expresses concern that several crown dependencies and overseas territories are not yet parties to the OECD Convention and have not yet prohibited the tax-deductibility of bribes and that in general the OECD Convention is a low priority for them. The report raised in particular the issue of whether a company incorporated in an overseas territory would be subject to UK corruption laws and found that in all likelihood it would not. The report encourages the UK authorities to "assist the OTs in adopting the necessary legislation" to implement the OECD Convention and to evaluate and monitor the practical application of such legislation.

   5. 3.5. Extractive Industries Transparency Initiative. The lead examiners specifically recommend that the Extractive Industries Transparency Initiative could be used to raise awareness of foreign bribery. The Initiative, it notes, has "not engaged in any awareness-raising initiatives or training programmes specifically targeting the Convention".

Footnotes

1 Phase 1 examinations by the OECD looked specifically at legislation enacted by OECD countries to implement the anti-bribery Convention. The UK's legislative arrangements were first reviewed in December 1999, and the Working Group concluded from this review that it "was not in a position to determine that the U.K. laws are in compliance with the standards under the Convention". It thus conducted a second review in 2002 after the UK has put relevant provisions in the Anti-Terrorism, Crime and Security Act of 2001 to outlaw foreign bribery.

2 The report states that the Serious Fraud Office had two investigations that it had opened since April 2004. A parliamentary answer in March 2005 states that there are now three such investigations. The low level of investigations is not a reflection of an absence of allegations. There are currently well over 40 allegations of bribery on the national register of overseas corruption cases.