OECD Report on foreign bribery
The recently published OECD Foreign Bribery Report (December 2014) examines all enforcement actions, concerning bribery of foreign public officials, that have been completed since the OECD Anti-Bribery Convention came into force in February 1999.
The OECD Report states that in the 15-year period since the Convention's inception there have been 427 foreign bribery cases in total (263 actions against individuals and 164 actions against entities) in 17 different countries. There are a further 390 investigations (in 21 OECD Convention signatory countries) currently underway.
The headline findings in the report are:
- 3 out of 4 cases involved payments through intermediaries;
- Over half of the cases involved corporate management or CEOs paying or authorising bribes;
- 1 in 3 cases were instigated by self-reporting;
- It now takes 7.3 years on average from the last date of offending to conclusion of the enforcement action;
- 59% of foreign official bribery cases occurred in just four sectors: extractive (19%); construction (15%); transportation (15%) and information & communication (10%);
- 43% of the cases involved bribery of officials in highly or very highly developed countries;
- On average the bribes in question accounted for 10.9% of the transaction value; and
- 27% of cases involved the bribing of public officials in state owned enterprises and 11% involved the bribing of customs officials (nb. facilitation payments).
The report confirms that in the vast majority of foreign official bribery cases (71%) the wrongdoing is carried out via one or more intermediaries. In 41% of these cases, the intermediaries in question were "agents" (eg marketing agents, distributors or brokers) and in a further 35% they were "corporate vehicles", such as subsidiaries, local consulting firms or offshore entities owned by the relevant public official or the bribe payer.
This finding emphasises the importance of having a well-designed and properly implemented due diligence and counterparty monitoring programme because it will act as a first line of defence to what is the highest bribery risk activity for companies, namely interaction with intermediaries.
In approximately one third of the self-reporting cases the bribery came to management's attention through an internal audit and in just over a quarter of the cases it was discovered during due diligence for M&A activity. Internal whistleblowing accounted for a further 17% of self-reports.
These statistics show why rigorous accounting and audit processes as well as strong whistle-blower protection are vital parts of a compliance programme. As well as helping to prevent corruption in the first place, such measures will help a company's management elicit information about actual misconduct early on and allow it to self-report promptly. With the sanctions in 69% of completed cases being imposed through some form of settlement (eg a deferred prosecution agreement) early reporting and engagement with the prosecutor will often lead to a better resolution for the company.
Where is corruption taking place?
Almost half of the cases involved bribes being paid to officials in highly or very-highly developed countries (based on the UN Human Development Index). However, the report cautions that these figures could be the result of more developed countries having greater capacity to be involved in or undertake corruption investigations.
At the very least, and as the report makes clear, this result shows that bribery takes place in countries at all stages of development, not just developing countries. It is therefore important that, when undertaking risk assessments, companies do not just focus on their activities in developing countries which are deemed to have a higher corruption risk. Adequate consideration still needs to be given to operations in lower risk jurisdictions.