• The 1994 Recommendation
• Bribery and trade
• Enforcement is key
• Looking to the future
• Recommendation on the Tax Deductibility of Bribes

The international community is more and more aware of the tremendous harm caused by corruption. It undermines confidence in democratic government, and this is a problem for established democracies as well as new democracies. It fosters criminal elements; wastes public resources; slows economic development; distorts trade.

An international response is taking form. At this conference, we will hear about the work of the ICC, the World Bank and Transparency International. Other multilateral and private sector organisations are active as well: the United Nations, the European Union, the Council of Europe, the Organisation of American States, the Trans-Atlantic Business Dialogue, to name a few.

The OECD has a distinct role because of what we are and what we have chosen to do. The OECD Member countries are major trading partners. They have a responsibility to protect and uphold the trading system. They are each others' major competitors in most markets. In large measure, their companies supply the kind of bribery that damages the trading system.

Recognizing their responsibility for the integrity of the multilateral trading system, members have undertaken in the OECD to fight bribery in international business Norway transactions. The main purpose of these efforts is to promote good public and Portugal corporate governance, and to prevent unfair competition in international trade in investment. This action is conducted under the auspices of the Committee on International Investment and Multinational Enterprises.

At the same time the OECD Development Assistance Committee has endorsed a strategy to combat corruption in bilateral aid-funded procurement. It recommends that DAC Members introduce or require anti-corruption provisions in aid-funded procurement contracts. And the Public Management Committee is helping OECD governments get their own house in order. It has developed the concept of an "ethics infrastructure" to help members assess their own strength and weakness in protecting the integrity of their governments.

The 1994 Recommendation

The OECD began its work on bribery in international business in 1989 at the initiative of the United States. After several years of learning together about the nature of the problem, OECD members agreed in 1994 on a general Recommendation which enjoins them to take concrete and meaningful steps to combat bribery in international business transactions.

Since then, and under the terms of the Recommendation, the members have surveyed each country's laws and rules to establish a benchmark to assess performance. And we have studied together, in-depth, a broad range of laws and rules that could be used to fight international bribery. Criminalisation of bribery of foreign officials is key but action in other fields taxation, accounting, audit, public procurement, civil and commercial law is also important. OECD countries are convinced that moving forward on a broad range of measures will have a strong impact.

An interim result was achieved in April 1996, when the Council agreed on a Recommendation on the tax deductibility of bribes. It says that members which allow deductibility should re-examine their laws with the intention of denying this deductibility.

Perhaps I might take a moment to explain what is an OECD Recommendation. The Secretariat receives many questions on this: is a Recommendation unanimous? Does it mean that every country has to implement it? Is there a deadline? This particular Recommendation is unanimous. No country reserved its position or refrained from taking the commitment implied in the Recommendation. It does not have the force of law. It does have the force of the commitment of each member to honour its undertakings vis a vis the other members. While the Recommendations leave members some flexibility in the choice of means, all are committed to the end result which is effective action against international corruption. These commitments are subject to monitoring and peer pressure in the OECD and thus begin to show concrete results. Some countries are already changing their tax laws and are contemplating changes in criminal law. I am sure that others will move quickly to do so as well. If not, the full impact of peer pressure will be reinforced.

Bribery and trade

The Secretariat is also asked whether we have measured the economic importance of corruption. Because of its nature -- hidden -- it is impossible to Paris measure global corruption at a general or "macro" level. Individual cases which come to light suggest the magnitude of individual deals which may be affected by bribery. Counting all of them is evidently impossible. Perhaps the most extensive count is that done by the US government which found over the past two years, some 100 business deals worth $45 billion which American companies allegedly lost because of bribery.

Even such partial estimates confirm a big global problem.

It also suggests that the effort which our countries put into negotiating trade liberalization and new commitments in the Uruguay Round will be undermined if bribery is condoned. What good does it do to shave a few more points off tariffs, or even reduce them by half, or agree to new rules on services or on subsidies, when the business decision will not be made on the basis of competitive price and quality, but on competitive bribery? Bribery distorts trade and competition. So do tariffs, subsidies, or voluntary export restraints. But there is a big difference. Competitors can see the tariff, the subsidies, the special agreements. Bribery is insidious. It is worse because it is not transparent.

Enforcement is key

Laws and policies against international corruption can work. The United States has a law against international bribery and the US enforces it actively. The law and the threat of prosecution are a strong deterrent, especially when senior managers and directors can be held responsible. I know this because of my experience as a Canadian lawyer with clients, subsidiaries of American companies, who took great pains not to run afoul of the spirit or the letter of the Foreign Corrupt Practices Act.

And there are other good methods. Companies will think more than twice before trying to bribe their way into the lucrative Singapore market having seen five companies barred from government procurement for five years for involvement in a kickback scheme.

One theme that has surfaced again and again at OECD is that it is not enough just to agree on the laws we should adopt. We must also make sure that every country enforces its law.

Part of the OECD approach may seem ambitious. In some measure, it asks each country to be responsible for the conduct of its companies abroad. I can understand that this creates concerns for individual countries and individual companies. Each country worries that, given the high economic stakes, its neighbour -- even with a good a statute on the books -- will not carry through with enforcement. If you prosecute your company, it may lose the contract as well as its reputation; the country may lose jobs. How can each partner be sure that the others will put the necessary resources into enforcement, give this crime high priority and look for the evidence to prosecute their own firms?

Companies are worried too. They know that their own national authorities will be zealous in enforcing the law; they fear that other countries will let their own national companies get away with bribery and let the business deal with it.

The key issue is the level playing field. Today the field is tilted against the companies whose home jurisdictions prohibit international bribery, and also against the vast majority of companies who do not bribe because they have ethical standards for corporate behaviour. I am sure our colleagues from the business sector can give us abundant reasons why companies prefer not to engage in a practice which poisons their own business culture. But, as we level the field to give these companies their fair chance, we must not leave loopholes which will allow unscrupulous firms and unscrupulous foreign officials to steal the game. All the major trading partners must move in an effective and co-ordinated manner to stop international bribery.

Fighting corruption is not a zero-sum game. There are potential benefits for honest companies and honest governments.

Looking to the future

I hope that the OECD can help to resolve the problem of levelling the field and keeping it level. Earlier, I spoke of the identity of OECD in terms of its Members. The OECD also has a strong tradition of constructive co-operation and mutual respect and responsibility. Each country brings its expertise, traditions and values to forge a multi-country effort which will be more effective than individual actions. The commitments of each country to the other members are not entered into lightly; monitoring and peer pressure can do a lot to prod countries into effective action.

If we can find the technical basis for moving forward in an effective manner, I am convinced that the values and mutual respect which bind us, coupled with a realistic exercise to monitor performance, will permit us to get past the problem of who moves next so we can all move together. OECD is the forum where participants can openly assess the progress their partners are making, and non-member countries and other international organisations are welcome to join this effort.

I would like to conclude by emphasizing the importance of co-operation with the private sector in the fight against bribery. It is business firms which face extortion and the hard choice of whether to enter the bribery competition, knowing that that is how the deal will be won. The solutions we devise in government will not work unless they work for you and unless you join our efforts.

Recommendation on the Tax Deductibility of Bribes to Foreign Public Officials
Information Note from the OECD Secretariat
The OECD Recommends that bribes to foreign public officials should be no longer tax deductible.

The payment of bribes in international business transactions raises serious moral and political concerns and exacts a heavy economic cost, hindering the development of international trade and investment by increasing transaction costs and distorting competitive conditions. The present tax treatment of bribes in OECD Member countries may add to this distortion.

In 1994, the OECD Council adopted the Recommendation on Bribery of Foreign Public Officials in International Business Transactions which calls on Member countries to act to combat illicit payments in international trade and investment. As part of that Recommendation, reference was made to the need "to take concrete and meaningful steps including examining tax legislation, regulations, and practices insofar as they may indirectly favour bribery. (C(94)75)." In response to this request, the OECD's Committee on Fiscal Affairs undertook and in-depth review of tax measures which may influence the willingness to make or accept bribes.

The Committee concluded that bribes paid to foreign public officials should no longer be deductible for tax purposes, which will require many Member countries to change over time current practices.

This Recommendation, which was adopted by the Council of the OECD on 11 April 1996, underlines the commitment of OECD Member countries to good governance in their political systems and will have an important demonstration effect for cooperation with non-Member countries.

The OECD Committee on Fiscal Affairs will monitor the implementation of this Recommendation.

Text of the Recommendation on the Tax Deductibility' of Bribes to Foreign Public Officials

(adopted by the Council on 11 April 1996 at its 873rd session [C/M(96)8/PROV])

C(96)27/FINAL

THE COUNCIL,

Having regard to Article 5b) of the Convention of the Organisation for Economic Cooperation and Development of 14th December 1960;

Having regard to the OECD Council Recommendation on Bribery of Public Officials in International Business Transactions [C(94)75];

Considering that bribery is a widespread phenomenon in international business transactions, including trade and investment, raising serious moral and political concerns and distorting international competitive conditions;

Considering that the Council Recommendation on Bribery called on Member countries to take concrete and meaningful steps to combat bribery in international business transactions, including examining tax measures which may indirectly favour bribery;

On the proposal of the OECD Committee on Fiscal Affairs and the OECD Committee on International Investment and Multinational Enterprises:

I: RECOMMENDS that those Member countries which do not disallow the deductibility of bribes to foreign public officials re-examine such treatment with the intention of denying this deductibility. Such action may be facilitated by the trend to treat bribes to foreign public officials as illegal.

II. INSTRUCTS the Committee on Fiscal Affairs, in cooperation with the Committee on International Investment and Multinational Enterprises, to monitor the implementation of this Recommendation in the context of contacts with non-Member countries and to report to the Council as appropriate.