BAE/ Rolls-Royce/ Airbus "may" have broken OECD Guidelines
ECGD destroyed records that would confirm one way or the other

Under the OECD Guidelines for Multinational Enterprises, commercial confidentiality cannot be used by corporations as a reason for refusing to supply the names of their agents when requested by competent authorities. This ruling by the UK government was issued in November 2010, six years after The Corner House first submitted a Complaint against BAE, Rolls Royce and Airbus.

The Complaint alleged that the three companies breached the Guidelines by refusing to disclose when requested the names of their agents to the UK’s export credit agency (Export Credits Guarantee Department, ECGD). (Agents are a common route through which bribes are channelled.) The allegations arose after the ECGD released in January 2005 correspondence between the Department and the three companies in which they lobbied to weaken new anti-bribery rules.

The UK National Contact Point (NCP) for the OECD Guidelines has ruled that all three companies would have been in breach of the Guidelines if they had refused to disclose the names of their agents when requesting financial support from ECGD, regardless of commercial confidentiality. The NCP ruled that there is evidence that the companies may have refused to supply the names of their agents to ECGD when making an application for support. The NCP could not verify this, however, because ECGD does not keep a record of applications and has destroyed all documents relating to withdrawn applications.

Background

Multinational companies often pay a commission or “success fee” to a local agent based in another country to help them win a contract in that country. But they have also channelled bribes to win contracts through such agents. The size of a commission fee is a good indicator in determining whether the agent's role was legitimate or not. A fee that amounts to 2-5% of the contract value, paid to a local bank account of a respected local businessperson with no personal ties to decision-makers on the contract, may well be legitimate. But one that amounts to 10-20% of the contract value, and is paid into an offshore account or secret trust, or is paid to a minister or official (public or private) directly involved in decision-making on the contract to be awarded strongly suggests that bribes are involved.

When companies request export credit agency support and insurance for their contracts abroad, they have tended to include the cost of commissions in the overall sum to be underwritten. Transparency International has described underwriting commissions as “an indirect encouragement to bribe” and “close to complicity with a criminal offence.”

In May 2004, the UK’s export credit agency, the Export Credits Guarantee Department (ECGD), introduced new anti-corruption measures that required companies requesting ECGD support for a particular contract to provide information about the agents they use on that contract, including how much they are paid in commission.

In November 2004, however, ECGD significantly weakened these rules after intense industry lobbying against them, a decision that The Corner House challenged through the courts. In January 2005, as a result of the court case, the government made public some 380 pages of documents, predominantly correspondence between three British companies (Airbus, BAE Systems and Rolls Royce) and an industry grouping, the Confederation of British Industry (CBI) with the ECGD. This correspondence includes the initial objections these exporters made about the Department's strengthened anti-corruption rules and the subsequent detailed exchanges and negotiations on the revisions that the exporters wanted, to which ECGD eventually capitulated.

ECGD support to these three companies is historically and currently significant. ¹

Complaining to OECD

The released correspondence revealed that Airbus, BAE Systems and Rolls Royce had refused to provide information to the ECGD about the agents they employed in their contracts backed by the Department, many of which are with public bodies or state-owned enterprises in other countries. They also refused to accept disclosure requirements on agents’ commissions. For both refusals, the companies claimed that the information was commercially confidential.

The Corner House submitted a Complaint on 4 April 2005 under the OECD Guidelines for Multinational Enterprises, a set of voluntary principles and standards to which multinational enterprises operating in or from OECD member states are expected to adhere. The Guidelines provide a set of recommendations for "good corporate behaviour", including combating bribery. They stipulate that:

“Enterprises should ensure that remuneration of agents is appropriate and for legitimate services only. Where relevant, a list of agents employed in connection with transactions with public bodies and state-owned enterprises should be kept and made available to competent authorities.”

(Part 1 Chapter VI Paragraph VI.2)

The Complaint gave a detailed chronology of the refusals from the three companies to provide the names of their agents.

The UK National Contact Point (NCP) for the OECD Guidelines accepted the complaint in May 2005, and forwarded it to the three companies for comment. It put the Complaint on hold, however, pending the outcome of a public consultation initiated by ECGD on its anti-corruption measures, which concluded in March 2006. As a result of the consultation, ECGD re-introduced strengthened anti-corruption procedures on 1 July 2006.

It was only several years later, in September 2009, that the NCP wrote to The Corner House, apologising that it had “lost” the Complaint because of staff changes. Current NCP staff had become aware of the Complaint only after reviewing a June 2009 submission to the OECD by civil society group OECD Watch, which noted that the Complaint was pending.

The Corner House indicated in November 2009 that it wanted the NCP to continue with the Complaint, even though the relevant ECGD rules on requiring the disclosure of information on agents were reinstated in July 2006. As the OECD Guidelines are for all OECD countries, rulings would be relevant to export credit agencies in all OECD countries, not just the UK.

Final ruling

The NCP issued its final statement on the Complaint involving Airbus, Rolls Royce and BAE on 5 November 2010.

The NCP clarified that the Guidelines require companies to keep a list of their agents and disclose their identities upon request from a relevant authority, and that commercial confidentiality cannot be cited a reason for withholding the information. It stated, however, that the Guidelines do not require disclosure of the agents’ commissions.

The NCP stated that if the companies had refused to disclose their list of agents when making an application for support, they would have breached the Guidelines.

It based its assessment of the Complaint on whether any of the three companies had made an application for ECGD support between May 2004 (when the new anti-corruption rules were introduced) and October 2004 (when they were dropped). It did not consider that any request for agent information applied to existing ECGD-backed transactions.

On this basis, the NCP concluded that there was not enough evidence to say whether the three companies did or did not supply their list of agents when making specific applications for support because ECGD had destroyed its records of applications for support and applications refused during the period in question. (According to the rules, if a company had requested support for a contract including agents’ commissions, but had refused to supply the list of agents, its request would have been refused.)

The NCP concluded that all three companies did seek assurances from ECGD that they could not disclose their lists of agents on the grounds of commercial confidentiality (which would have been a breach of the Guidelines), but that lobbying for such an assurance did not of itself breach the Guidelines.

1Historically, Airbus and BAE combined have accounted for as much as 80% of ECGD’s portfolio. On ECGD’s own admission, support for Airbus remains “a significant part of the Department’s business”. “During 2009-10 ECGD supported a record level of business involving Airbus”(p.4) for the sale of 166 Airbus aircraft, an increase of 87% on the previous year. “ECGD guarantees represented by Airbus deliveries grew to 90 per cent of the value of business underwritten.”(p.8) Rolls Royce engines power nearly half of the Airbus aircraft supported by ECGD in 2009-1010.

In ECGD’s breakdown by sector of the value of the business it supports, Airbus is now a sector of its own. In 2009-2010, 89% of ECGD support went to ‘Airbus’, 1% to ‘other aerospace’, 9% to civil, and 1% to ‘defence’.(p.18) Three years ago, in 2007-2008, the highest sector was ‘defence’ at 57% with ‘Airbus’ receiving just 29%.

The defence figure dropped to 1% after BAE terminated its ECGD insurance cover for arms sales to Saudi Arabia in September 2008. The cancellation came just weeks before the publication of a damning report from the OECD; the report queried why ECGD had not acted on evidence that BAE had allegedly made fraudulent bribery-related misrepresentations when it requested the insurance cover from ECGD.

(Quotes from ECGD Annual Review and Resource Accounts 2009-10)