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Improving Britain’s ability to convict those paying bribes in arms deals

Deception in High Places by Nicholas Gilby

Deception in High Places by Nicholas Gilby

In the past the authorities in the United States have been much more successful in prosecuting foreign bribery by their companies than the authorities in Britain.

The Organisation for Economic Co-operation and Development’s latest report on steps taken to implement and enforce the OECD Anti-Bribery Convention in the United Kingdom is far more scanty than that for the United States (even after allowing for the fact the economy of the United States is much bigger than the UK’s).  Further, since the Bribery Act 2010 came into force in the UK almost three years ago, there has been no conviction of anyone for foreign bribery under the Act. And last year, in 2013, there was only one conviction of someone for foreign bribery under the previous legislation. So how can the UK improve its record, and what should those wishing to see this happen do?

In recent years Parliament’s Committee on Arms Export Controls has done a commendable job of scrutinising British Government policies, culminating in a very extensive recent report for 2013-14. However, inevitably the Committee can only pay brief attention to the issue of corruption, which is one of a great range of issues it looks at.

In its most recent report, on combating bribery and corruption, it said

  1. The Committees recommend that the Government in its Response:
    1. states the names of the individuals and companies against whom it has taken action under the provisions of the Bribery Act 2010 in relation to their arms export dealings; and
    2. provides its assessment as to whether the provisions of the now concluded Arms Trade Treaty will be of any practical help in combating bribery and corruption in the international arms trade. (Refer to Volume II, paragraphs 155-159.).

The British Government responded

    There have been three prosecutions to date under the Bribery Act; none relate to arms exports

and

    It is the Government’s assessment that by establishing internationally agreed standards for transfers of conventional arms and through international reporting, the Arms Trade Treaty will be of practical help in combating bribery and corruption in the international arms trade.

Rather than the Arms Trade Treaty, yet to enter into force, a much better place to look to see what more can be done to take action against corruption in the UK’s arms trade is obviously the United States. After all, the Americans have had effective laws in place for much longer (the Foreign Corrupt Practices Act dates from 1977) and they have undertaken much more recent enforcement action.

As is well known, in the United States the authorities were able to prosecute BAE Systems for making dubious payments in arms deals with Saudi Arabiathe Czech Republic, Hungary and South Africa. In Saudi Arabia, according to the Department of Justice

BAES agreed to transfer more than £10 million plus more than $9 million to a bank account in Switzerland controlled by an intermediary, being aware that there was a high probability that the intermediary would transfer part of these payments to the same KSA official

who

was in a position of infulence regarding sales of fighter jets, other defence materials and related support services.

In the United States, export control laws, known as the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR), require companies applying for export licences from the United States Government to “identify associated commissions to the State Department- whether they are legitimate commissions or bribes – paid to anyone who helps secure the sales of defense materials”.

It is well known that the payment of commissions is a major risk area in international trade, because business agents can and do use commissions to pay bribes to decision-makers. Some companies of course pay commissions to business agents with the intention they are used corruptly. Further, companies and business agents wishing to pay bribes often use webs of companies in secrecy jurisdictions or offshore tax havens, because that makes it far more difficult for law enforcement agencies, even those benefiting from tough laws against foreign bribery, to convict them.

The UK should adopt the same system as in the United States. All companies wishing to obtain an export licence should be required by law to declare all commissions paid to those helping them secure their deals – including the name of the person, natural or legal, the jurisdiction they are from, amounts paid, and dates. Further, if during the lifetime of the contract to which the export licence relates, the arrangements change in any way, companies should be required to update the information provided previously.

In addition the company should be required to sign a declaration stating that it does not consider any such payments corrupt as defined by the Bribery Act 2010, and that it accepts severe punishment will be warranted should the declaration later prove to be false. Such forms and declarations should be kept confidential by the British Government, but made available to investigations by law enforcement agencies. Further, when allegations about certain deals appear in the media, Government officials should routinely consult such forms and declarations and consider whether to refer the allegations to the law enforcement agencies.

Companies that are paying legitimate commissions and behaving lawfully need do little more than fill in an extra form, and need have no fear of trouble later. Companies that do pay bribes will almost certainly not tell the truth (if this system was not in place their arrangements will of course be secret too). However, the advantage of this system is it greatly lowers the bar to prosecution if a company’s actions are uncovered later. The very fact full disclosure of commissions, which carry serious risks of corruption, has not occurred will be sufficient to secure a conviction.

It is self-evident that transparency is a key weapon in the prevention of wrong-doing. Given the United States showed in the BAE Systems case how effective demanding it can be, there is a strong case for adopting the same system in the UK. UK Export Finance, the body which provides loan guarantees to British companies for some exports, as standard requires companies to follow recommendation 1 e) of the OECD Recommendation on Bribery and Officially Supported Export Credits which says applicants for export credit should

disclose, upon demand: (i) the identity of persons acting on their behalf in connection with the transaction, and (ii) the amount and purpose of commissions and fees paid, or agreed to be paid, to such persons.

If this is good enough for export credit applications, it ought to be good enough for export licence applications. Andrew Feinstein and Barnaby Pace made a similar proposal, albeit in less detail, to the Committee on Arms Exports Controls in November 2012. The Committee did not take up their suggestion. It would be great to see those in non-governmental organisations, other advocacy groups and the media unite to press the Committee and Government to take up this recommendation. Doing so would go a long way to convincing companies that the UK’s laws against foreign bribery will be rigorously enforced, and greatly increase the risks those executives defying the law are taking. Further, the Committee may well be receptive. In its 2007-08 report it said

We recommend that as a first step the Export Control Organisation require those applying for export licences to provide a declaration that to the best of their knowledge the export contract has not been obtained through bribery or corruption and that where an agent has been used due diligence checks have been carried out. We recommend that those who knowingly make a false declaration be liable to prosecution and revocation of all export licences.

In its response, the British Government stonewalled, saying it would consider the matter later.

Just before the 2010 General Election the Committee said

We adhere to the recommendations on bribery and corruption made in our 2008 Report and we recommend that the Government consider them further with a view to implementing the recommendations or explaining why there is no need to do so.

The Government then changed, and the issue has not been revived. It is time something was done.


This article originally appeared on the Deception in High Places blog.

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