The signing in December of 1997 by 34 states of the OECD's Convention on Combating Bribery of Foreign Public Officials" represents a major breakthrough. However the Convention is not self-operative. It requires ratification and enactment of implementing legislation. The signatories have agreed to submit the Convention and the implementing legislation to their legislatures by April 1, 1998, and to seek approval by the end of the year. This memo provides a checklist of key issues for use by T1 Chapters in reviewing proposed implementing legislation in their countries.

The effectiveness of the Convention will be critically depended on the terms of the implementing legislation. The Commentaries on the Convention make clear that the objective is 'functional equivalence among the measure taken by the Parties to sanction bribery of foreign public officials, without requiring uniformity or changes in fundamental principles of a Party's legal system." [Commentary 2] While some flexibility is needed to apply the Convention in 34 different legal systems, there is a risk that such flexibility could be abused. Unless the Convention is implemented in a consistent and effective way, the objective of achieving common rules for international competition would be undermined. Moreover, when any country deviates from the provisions of the Convention, other countries will feel justified in making their own deviations.

Article 12 of the Convention provides for a "program of systematic follow up to monitor and promote the full implementation of this Convention", to be conducted by the OECD Working Group on Bribery. The OECD has expressed interest in non-governmental participation in the monitoring program. T1 Chapters in OECD states can make an important contribution by closely following the actions taken in their countries to ratify and implement the Convention. We suggest that National Chapters obtain drafts of proposed. bills as early as possible in the process of legislative consideration. Such drafts should be reviewed, using our checklist. When deficiencies are identified, they should be brought to the attention of the appropriate government and legislative officials.

Please keep the TI Secretariat informed by transmitting copies of bills, your analysis of such bills, reports on your discussions with government and legislative officials, and any relevant media coverage. This will enable TI to inform the OECD Working Group of potential problems.

The following checklist identifies key issues and is not intended to be all inclusive. The review of implementing legislation should also make use of the text of the Convention and the official Commentaries on the Convention. The legislation implementing the Convention may not cover all of the issues listed below. Some may already be covered by existing laws. Others may be regarded as administrative matters, that do not have to be covered in legislation.

1. Broad Definition of Bribery.

a) Article 1, paragraph 1, of the Convention uses a broad definition of the offense of bribery of foreign public officials. It applies to bribery "in order to obtain or retain business or other improper advantage in the conduct of international business." Thus it covers not only bribery in connection with procurement, but also bribery for other purposes, such as securing environmental or other regulatory permits, as well as in tax, customs, judicial and legislative proceedings,

b) The prohibition applies whether bribes are paid directly or through intermediaries.

c) Article 1, paragraph 2, provides that complicity in, including incitement, aiding and abetting, or authorization of an act of bribery shall be a criminal offense.

2. Facilitation Payments

Commentary 9 states that "small facilitation payments" to induce public officials to perform their functions, such as issuing licenses and permits, are not considered an offense under the Convention. The breadth of a facilitation payment exception should be carefully scrutinized. It should be limited to small payments to lower-level officials.

3. Broad Definition of Foreign Public Official.

a) Article 1, Section 4, covers persons holding legislative, administrative or judicial office, whether appointed or elected, and including all levels and subdivisions of government from national to local.

b) Also covered are persons working for public enterprises; this includes enterprises over which governments may exercise a dominant influence, such as majority ownership. This is important because in many countries such enterprises-often called parastatals-are in charge of key sectors such as transportation, energy, health services, telecommunications and infra-structure development. The coverage of public enterprises was a controversial issue and it is important to make sure that the implementing legislation is not used to restrict such coverage. Commentary 15 states that public enterprises are deemed to perform a public function unless they operate on a "normal commercial basis substantially equivalent to that of a private enterprise, without preferential subsidies or other privileges,"

c) The prohibition also covers "any person exercising a public function for a foreign government." This covers such situations as government delegation of tasks in connection with public procurement. [Commentary 12]

d) Officials or agents of a "public international organization" are also covered.

e) The Convention prohibits payments to public officials to use their influence outside their official area of responsibility, such as the Finance Minister interceding with Transportation Minister to award a contract. [Commentary 191 This demonstrates the intention to have the Convention applied broadly; and not to define narrowly "performance of official duties" in Article 1, paragraph 1,

f) Political party officials are not included under the definition of foreign public official. However the Convention would cover such situations as where a party official acts as an intermediary passing on a bribe to a public official, or where a public official requests that a bribe be paid to a political party or party official. Commentary 16 indicates that party officials in single-party states may be considered foreign public officials, because of their de facto performance of public functions.

4. Liability of Corporations

Article 2 requires states to establish corporate liability for bribery of foreign public. officials "in accordance with its legal principles." Commentary 20 provides that a state is not required to establish such liability if its legal system does not apply criminal responsibility to corporations. Paragraph 2 of Article 3 requires that states that do not apply criminal responsibility to corporations shall ensure that corporations "shall be subject to effective, proportionate and dissuasive non criminal sanctions, including monetary sanctions, for bribery of foreign public officials."

OECD states are increasingly applying their criminal laws to corporations. France, the U.K., and Korea have done so recently, and Germany and Switzerland are considering doing so. The European Union is urging all ELI members to adopt corporate criminal liability.

5. Sanction

a) Article 3, paragraph 1, provides that bribery of foreign public officials shall be punishable by effective, proportionate and dissuasive criminal penalties." It also provides that penalties shall be comparable to those applicable to bribery of domestic officials, including jail terms sufficient to bring into play mutual legal assistance and extradition. (That would mean felony rather than misdemeanor sentences under US law.)

b) Article 3, paragraph 3, provides for confiscation and seizure of bribes and the "proceeds of the bribery. "Commentary 21 defines the proceeds as the profits or other benefits derived by the briber.

c) Article 3, paragraph 4, provides that states consider imposing additional civil or administrative sanctions. Commentary 24 defines such sanctions and Includes disqualification from participation in public procurement and exclusion from entitlement to public benefits or aid,

6. Jurisdiction

a) States are required by Article 3, paragraph 1 to establish jurisdiction over bribery of foreign officials committed in whole or in part in its territory. Commentary 25 provides that territorial jurisdiction should be interpreted broadly "so that an extensive physical connection to the bribery act is not require

b) States which use nationality jurisdiction to prosecute nationals for offenses committed abroad are required by Article 3, paragraph 2 to apply such jurisdiction to bribery of foreign officials. Commentary 26 provides that the requirement of dual criminality should be deemed to be met if the bribery was illegal where it occurred. Since all states have laws prohibiting bribery of their own officials, the Commentary effectively prevents the use of dual criminality requirements as a precondition to prosecution.

c) States are required by Article 3, paragraph 4 to take remedial steps if their current basis for jurisdiction is not effective in the fight against foreign bribery.

7. Enforcement

a) Article 5 provides that decisions-to investigate and prosecute foreign bribery cases shall not be influenced by considerations of national economic interest, political relations with other states, or the identity of the persons or companies involved. Commentary 27 makes clear the intent to protect the* independence of prosecutors and judges from political interference. it would be helpful if the foregoing concepts were incorporated in the implementing legislation. However, they are more likely to come into play in the subsequent monitoring of enforcement activities.

b) Commentary 27 calls attention to the 1997 OECD Recommendation which provides that complaints of bribery of foreign officials should be seriously investigated and that adequate resources should be provided permit effective prosecution.

8. Statute of Limitations

Article 6 provides that statutes of limitations applicable to foreign bribery "shall allow an adequate period of time for the investigation and prosecution. This reflect the recognition that foreign bribery cases are inherently more difficult to pursue than domestic bribery cases, and that longer limitations periods are likely to be needed than for domestic cases.

9. Money Laundering

a) Article 7 requires states that have made bribery of domestic officials a predicate offense under their money laundering laws shall also do so for bribery of foreign officials.

b) Commentary 28 indicates that where a state has only made passive bribery (receipt of bribe by official) a predicate defense for money laundering purposes, Article 7 requires that the laundering of the bribe payment be subject to money laundering legislation. This appears to mean that their is no requirement to make the profits obtained by the bribe payer subject to the money laundering laws. This subject is scheduled to receiver further consideration by the OECD Working Group.

10. Accounting

a) Article 8, paragraph 1, requires the prohibition of a list of accounting practices for the purpose of bribing foreign officials or of hiding such bribery. The list of prohibited practices includes the establishment of off-the-books accounts, the making of off-the-books or inadequately identified transactions, the recording of non-existent expenditures, the entry of liabilities with incorrect identification of their object, as well as the use of false documents.

b) Article 8, paragraph 2, calls for "effective, proportionate and dissuasive civil, administrative or criminal penalties" for omissions and falsifications in the books, record, accounts and financial statements of companies.

c) Commentary 29 calls attention to section V of the 1997 OECD Recommendations. These contain more extensive provisions than Article 8 of the Convention concerning accounting requirements, independent external audit and internal company controls.

d)Commentary 29 notes that one immediate consequence of the implementation of the Convention will be that corporate financial statements must disclose material contingent liabilities for bribery of foreign officials,

11. Mutual Legal Assistance

a)Article 9, paragraph 1, provides for prompt and effective legal assistance to other Convention parties in criminal and non-criminal proceedings within the scope of the Convention.

b) Article 9, paragraph 3, provides that mutual legal assistance in criminal matters shall not be declined on the ground of bank secrecy.

c) Article 10, paragraph 1, provides that bribery of foreign officials shall be treated as an extraditable offense.

12. Tax Deductibility of Bribes

Tax deductibility of bribes paid to foreign public official is not covered by the Convention. However, the OECD recommended in 1996 that member countries which allow the deductibility of such bribes re-examine such treatment with the intention of denying such deductibility." Several states have terminated tax deductibility of bribes; others have tied action on ending tax deductibility to criminalization of bribery. The OECD's 1997 Recommendation urges prompt implementation of the 1996 Recommendation. -

TI Chapters reviewing the implementation of the Convention should also review and report on the status of action on terminating tax deductibility.

13. Follow-up Studies by OECD Working Group

The OECD Working Group has been instructed to conduct further studies, and report at the Spring 1999 Ministerial, on the following subjects:

* Payments to political parties and party officials * Payments to candidates for public office * Coverage of foreign subsidiaries * Private sector bribery 9 Money laundering

TI TASK FORCE ON OECD CONVENTION
Fritz Heimann
Peter Rooke
Michael Wiehen
April 6, 1998