Originally published by LexisNexis, Fulcrum managing partner Quinton Newcomb, senior associate Ed Pearson and associates Emily Lewis and Rubi Palmieri discuss the key findings of Transparency International’s Exporting Corruption report.
What are the key findings of the report?
The report analyses the performance of 47 leading global exporters, including 43 countries that are signatories of the OECD Anti-Bribery Convention, and shows how well – or poorly – countries are enforcing anti-corruption laws in line with the Convention’s principles.
Whilst the report considers some positive developments in the fight against corruption, such as an increase in the number of countries classed as implementing ‘moderate enforcement’, the overall tone of the paper is less optimistic: only four countries (the US, UK, Switzerland, and Israel) carry out ‘active enforcement’, according to the report (a decrease of 39% since 2018); and 19 countries (representing almost 40% of the global exports) carry out very little or no enforcement action.
The report listed nine key findings and made 10 recommendations. The key findings are:
- Active enforcement is down significantly
- Moderate enforcement has more than doubled
- No country is immune to exporting foreign bribery
- Most countries fail to publish adequate enforcement information
- Lack of public information on beneficial ownership hinders enforcement
- Compensation of victims is rare
- International cooperation is increasing, but significant obstacles remain
- Weaknesses in legal frameworks and enforcement systems persist
- Major non-OECD Convention exporters still fail to enforce
What have been the greatest obstacles to the universal adoption of ‘active enforcement’ measures?
According to the report, the greatest obstacles have been the following:
Lack of public information on beneficial ownership
Transparency International (“TI”) notes very slow progress across member states in establishing central public beneficial ownership registers of companies and trusts. This is the case even in the EU, which requires all EU countries to create a central register accessible to competent authorities.
The report notes that foreign bribery cases over the last two decades have revealed the frequent use of shell companies to assist in the concealment of bribes and kickbacks, and that open registers are key to the prevention, detection and investigation of foreign bribery.
As such, the report recommends that countries establish public central registers of UBO information and impose penalties for those failing to comply.
Failure to achieve meaningful levels of international cooperation
TI notes that effective international cooperation in investigations is increasing, including the use of mutual legal assistance, extradition and informal exchanges of information. However, despite some successes, it notes that many concerns highlighted in its previous report remain, including the inadequacy of legal frameworks to enable cooperation, limited resources, lack of coordination and long delays.
The report recommends the expansion and/or creation of international bodies to improve cooperation, such as the International Anti-Corruption Coordination Centre, as being key for an effective international effort to tackle bribery and corruption.
Weaknesses in domestic legislative frameworks and enforcement measures
Despite some improvements, significant weaknesses in laws and institutions hamper enforcement in nearly every country.
The report suggests that a failure to hold parent companies liable for the actions of their subsidiaries is a barrier to anti-corruption compliance. It cites the US and UK systems of attribution – the associated person and agency principles – amongst potential models for others to consider.
Enforcement failures in key-exporter non-OECD states
TI notes that whilst key global exporters such as China, Hong Kong, Singapore and India remain outside the OECD’s remit, they have an important role to play in tackling corruption in international trade.
The lax approach of these countries to criminalisation and the enforcement of corruption laws continues to hamper global enforcement efforts and encourages a ‘race to the bottom’, evident in concerns voiced recently by President Trump, who suggested that the FCPA put US companies at an economic disadvantage.
To what extent do the key findings resonate with your own experience? Why?
The report’s findings that the UK has maintained its position in the tier of active enforcer may raise eyebrows in some quarters given the challenges and criticism that the SFO has faced since 2018. That criticism comes in the form of censure from the Prosecution Service Inspectorate for the length of its investigations; concerns about its discontinuance of long-running and high-profile investigations; judicial criticism about the personal conduct of the Director in relation to Unaoil; and several high profile defeats in court.
In addition, the report criticises the recent Airbus DPA, noting that “The recent Airbus judgement explicitly shifts away from self-reporting being a condition for a DPA […] The failure to differentiate penalty discounts for those companies that self-report and cooperate and those that start cooperation once under investigation seriously reduces the incentive for companies to self-report their wrongdoing in the first place, calling into question the use of DPAs.”
The SFO has subsequently produced new ‘comprehensive guidance’ on DPAs, but this does little to address the concerns highlighted by the report.
Given these shortcomings, it is questionable whether the UK’s retention of its top tier ranking corresponds to the experience of UK practitioners. Not only this, but the UK faces significant additional challenges over the next year or so, which, if not addressed, may see it lose its coveted ranking. These challenges include Brexit, which might hamper international cooperation in the context of law enforcement, and of course the impact of COVID-19 upon the effective conduct of investigations.
The report is right to highlight the impact of COVID-19 – we have already witnessed the detrimental effect it has had on enforcement in the UK, with the SFO halting compelled interviews, searches and raids, and drastically reducing the issuance of section 2 notices in March/April 2020. The SFO has acknowledged that this has led to delays in its investigations, and it is unclear to what extent effective ways of progressing investigations during this period have yet been found.
Reform of the ‘antiquated fraud laws’, frequently cited as an obstacle to successful corporate prosecutions (an issue that had already previously been side-lined by the government) seems likely to remain on the back burner while the government focuses upon battling the virus and its economic fallout, and of course the continuing Brexit negotiations.
What do the findings of the report mean for the global fight against corruption?
Whilst the report does highlight some positive steps that have been made in the past few years, such as the increase in ‘moderate enforcement’ levels and international cooperation, the overall tenor is one of a stark warning against complacency regarding bribery and corruption; a point also reinforced by the finding that there is little correlation between those countries that performed well in TI’s Corruption Perceptions Index and those which undertake sufficient levels of enforcement.
The hope will be that this report will act as a call to arms, but governments’ focus on COVID-19 will likely hamper any immediate efforts to implement the recommendations of the report, and the global fight on corruption will continue to be impeded as a result.
 The report defines active enforcement as enforcement that “reflects a major deterrent to foreign bribery” and gives countries scores based on how many investigations and cases they commenced and concluded, with and without sanctions, which are adjusted according to the percentage of global exports that country is responsible for.