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Foreign Bribery Usually Approved by Management, Targeted at Procurement Contracts, OECD Says

Monday, December 08, 2014
Sandler, Travis & Rosenberg Trade Report

The Organization for Economic Cooperation and Development published recently its first-ever Foreign Bribery Report. This report seeks to paint a clearer picture of the extent of foreign bribery, outlines trends in enforcement of anti-bribery laws, and concludes with a set of preliminary conclusions and suggestions for a more targeted approach to preventing, detecting and punishing this crime. The report is based on data from the 427 foreign bribery cases that have been concluded in 17 countries since the OECD Anti-Bribery Convention entered into force in 1999, and OECD hopes to update it in the future as additional cases are concluded.

Key Findings

- Two-thirds of the foreign bribery cases occurred in four sectors: extractive (19 percent), construction (15 percent), transportation and storage (15 percent) and information and communication (10 percent).

- Almost half of the cases involved bribery of public officials from countries with high (22 percent) to very high (21 percent) levels of human development, meaning that corruption is “not, as some would believe, the scourge solely of developing economies.”

- Management-level employees paid or authorized the bribe in 41 percent of cases, while the company CEO was involved in 12 percent of cases.

- Intermediaries were involved in three out of four foreign bribery cases. These intermediaries were agents, such as local sales and marketing agents, distributors and brokers, in 41 percent of cases. Another 35 percent of intermediaries were corporate vehicles such as subsidiary companies, local consulting firms, companies located in offshore financial centers or tax havens, or companies established under the beneficial ownership of the public official who received the bribes.

- Bribes were promised, offered or given most frequently to employees of state-owned enterprises (27 percent), followed by customs officials (11 percent), health officials (7 percent) and defense officials (6 percent).

- Bribes were most often paid to obtain public procurement contracts (57 percent), followed by clearance of customs procedures (12 percent).

- On average, bribes equaled 10.9 percent of the total transaction value and 34.5 percent of the profits.

- One in three cases came to the attention of authorities through self-reporting by defendant companies or individuals. The next most common sources were investigations initiated directly by law enforcement authorities (13 percent) and foreign bribery cases that came to light in the context of formal or informal mutual legal assistance between countries (13 percent). Whistleblower reports and media coverage accounted for only 2 percent and 5 percent, respectively, of investigations.

- Companies that self-reported became aware of the foreign bribery in their international operations primarily through internal audits (31 percent) and merger and acquisition due diligence procedures (28 percent).

- Prison sentences were handed down to 80 individuals (the longest sentence being 13 years) while another 38 individuals received suspended prison sentences.

- In total, there were 261 fines imposed on individuals and companies, with the highest combined fine against a single company totaling $2.2 billion and the highest monetary sanction imposed against an individual being a forfeiture order amounting to $149 million.

- Sanctions were imposed by way of settlement in 69 percent of cases.

- The U.S. has sanctioned individuals and entities for foreign bribery in connection with 128 separate foreign bribery schemes, compared to 26 for Germany, 11 for Korea, and six for Italy, Switzerland and the United Kingdom.

- The average time needed to conclude anti-bribery cases has increased from around two years for cases concluded in 1999 to just over seven years today.

Recommended Next Steps

- Introducing, strengthening and implementing whistleblower protection mechanisms in the public and private sectors should be a priority, and harmonization of the whistleblower protection regimes developed for different crimes would reinforce their effectiveness.

- Law enforcement authorities need adequate time to investigate and prosecute foreign bribery, including through provisions to suspend and interrupt the limitation period as appropriate, but it is also essential that they undertake efficient and effective investigations to avoid unnecessary delays.

- Not only should monetary sanctions be imposed for foreign bribery but it is also important to effectively confiscate the instruments and proceeds of the bribe, or property of equivalent value.

- Settlement procedures should respect the principles of due process, transparency and consistency. For this reason, the outcome of the settlement should be made public, where appropriate and in conformity with applicable law, especially the reasons why the settlement was appropriate, the basic facts of the case, the legal or natural persons sanctioned, the sanctions agreed, and the terms of the agreement.

- The overwhelming use of intermediaries in foreign bribery cases demonstrates the need for enhanced and effective due diligence, oversight and application of the company’s compliance program to third parties (whether individuals or companies) in international business transactions. Compliance programs should focus specifically on due diligence with respect to agents and on verifying the rationale and beneficial ownership of other companies involved in the transaction.

- Bribery risk assessments should focus on the context of the transaction (e.g., whether it involves partnering with a public company, public procurement or the use of intermediaries) rather than the country involved.

- There is scope for greater incentivizing preventive anti-bribery compliance programs, including by recognizing the existence and effectiveness of such programs in mitigating sanctions.

- Governments should ensure that public officials who have regular contact with business and the private sector are properly trained and informed of the risks and consequences of bribery.

- The fact that only two out of 427 cases resulted in debarment demonstrates that countries need to do more to ensure that those who are sanctioned for having bribed foreign public officials are

suspended from participation in national public procurement contracting.

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