The OECD Convention on Bribery
March 06, 1998
On December 17, 1997, representatives of 34 states signed a new Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The Convention was negotiated under the auspices of the Organization of Economic Co-operation and Development (OECD); signatories include all 29 member states of the OECD (including the United States) as well as five non-members. According to the Preamble to the Convention, the goal of the agreement is to combat the "widespread phenomenon" of bribery in international business transactions. As the Preamble puts it, bribery "raises serious moral and political concerns, undermines good governance and economic development, and distorts international competitive conditions."
Each Party shall take such measures as may be necessary to establish that it is a criminal offence under its law for any person intentionally to offer, promise or give any pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official, for that official or for a third party, in order that the official act or refrain from acting in relation to the performance of official duties, in order to obtain or retain business or other improper advantage in the conduct of international business.
Article 1 of the Convention obliges states to criminalize certain forms of bribery. Article 1(1) provides:
According to the "Commentaries on the Convention" (adopted by the parties on November 21, 1997), Article 1(1) merely establishes a "standard" to be met by states party. The Commentaries make clear that parties to the Convention need not use its "precise terms" in defining bribery in municipal law.
Critics of Article 1(1) have argued that this standard of "functional equivalence" fails to level the playing field for states like the United States, which has already enacted tough anti-bribery legislation in the form of the Foreign Corrupt Practices Act. These critics charge that the Convention stops short of obliging states to impose criminal sanctions on "legal persons" (corporations and other businesses), whereas American corporations already operate under the threat of criminal prosecution for bribery of foreign officials. Indeed, Article 3(2) of the Convention provides that a state that does not impose criminal responsibility on legal persons is not obliged to do so for bribery; such a state is obliged only to impose civil sanctions. Critics also point out that the Convention does not establish any uniform penalties on any person - natural or legal - for bribery. Under Article 3(1), punishment for bribery need only be "comparable" to the punishment already prescribed for bribery of a state party's own public officials.
Supporters of the Convention reply that it is not realistic to expect thirty-four different states with different legal systems to adopt an identical criminal statute on bribery. They stress that states party that do not impose criminal liability on legal persons are nonetheless obliged by Article 3(2) to ensure that legal persons are subject to "effective, proportionate and dissuasive non-criminal sanctions, including monetary sanctions," for bribery. They argue that there is no functional difference between civil and criminal liability for legal persons, since in either event liability results in monetary sanctions. As for the absence of uniform penalties, that feature is hardly unique to the Bribery Convention; other treaties on international criminal law adopt the same approach. The Genocide Convention, for example, simply obliges states to "provide effective penalties" for genocide without specifying any minimum punishment.
The definition of bribery in Article 1(1) has also been criticized for failing to cover all bribes to foreign political parties and candidates for office. Article 1(1) covers bribes given to a "foreign public official," defined in Article 1(4) as any person holding a "legislative, administrative or judicial office" of a foreign country, a person "exercising a public function" for a foreign country or a "public agency or public enterprise" of that country, or an official of a public international organization. This definition does not mention officials of political parties or candidates for office, even though bribes of political parties and candidates can be a serious source of corruption. The Commentaries to the Convention do assert that in "special circumstances, public authority may in fact be held by persons (e.g., political party officials in single party states) not formally designated as public officials." But neither the text nor the Commentaries offer any further guidance on when a candidate for office or an official of a political party might constitute a person "exercising a public function." The United States did seek a broader provision on bribes of foreign political parties, but it defends the final text as progress in the right direction. Supporters of the Convention also note that the OECD has pledged to review this issue again in the future.
Article 1 has also been faulted for failing to criminalize certain payments to officials of state-owned enterprises. Article 1(4) covers a bribe to an official of a "public enterprise" - but only if that official is exercising a "public function" for that enterprise. The Commentaries define a "public enterprise" fairly broadly, as one over which a government "may, directly or indirectly, exercise a dominant influence," as for example when a government is a majority share-holder. The Commentary goes on, however, to state that an official of such an enterprise is not exercising a "public function" if that enterprise "operates on a normal commercial basis in the relevant market, i.e., on a basis which is substantially equivalent to that of a private enterprise, without preferential subsidies or other privileges." Critics charge that this comment opens up a huge loophole, since there is little agreement on what constitutes "preferential subsidies or other privileges." Supporters of the Convention respond that this provision still marks a step forward. More particularly, they argue that the distinction between a "public" and a "private" function is not as untenable as the critics suggest, since the municipal laws of many states already draw such a distinction in a variety of other contexts.
Critics of the Convention point to what they say is one other loophole in Article 1(1). That provision outlaws bribes made in order "to obtain or retain business or other improper advantage." The Commentary to the provision describes an "improper" advantage as one to which a company "was not clearly entitled," for example an operating permit for a factory that fails to meet statutory requirements. But the Commentary also provides that an advantage is not "improper" if it is "permitted or required by the written law or regulation of the foreign public official's country, including case law." Two commentators have called this provision "a loophole that will send apologists scurrying for precedent to excuse inexcusable behavior." Supporters of the Convention reply that similar language exists in the U.S. Foreign Corrupt Practices Act, which recognizes that corporations are at a significant disadvantage if they are to be punished for making payments that are permitted (much less required) under foreign law.
There is one final aspect of Article 1(1) that deserves comment. The Commentary to Article 1(1) asserts that the provision does not cover small "facilitation" payments to foreign officials to induce them to perform their functions. Even if such payments are illegal under the foreign country's law, they apparently do not constitute payments made "to obtain or retain business or other improper advantage." The Commentary acknowledges that this type of petty corruption is a "corrosive phenomenon" but argues that it should be addressed by "support for programmes of good governance" rather than criminal sanctions, which do not seem a "practical or effective" alternative. Again, the Foreign Corrupt Practices Act contains an analogous provision: it permits a "facilitating or expediting payment" designed to "expedite or to secure the performance of a routine governmental action" by a foreign official.
Not every provision of the Convention is as controversial as Article 1(1). Article 1(2) extends criminal liability to complicity in bribery (including incitement, aiding and abetting, or authorization of bribery) as well as attempt and conspiracy to commit bribery. It is commonplace for treaties on international criminal law and municipal penal codes to establish criminal responsibility for complicity, attempt and conspiracy as well as the underlying offense. Article 1(2) apparently does not require that attempt and conspiracy carry the same penalties as the offense itself. Interestingly, the Commentary suggests that a state party is not required to punish an inchoate offense like authorization of bribery if the inchoate offense does not "lead to further action" - i.e., does not lead to the actual payment of a bribe.
Article 4 of the Convention relates to jurisdiction. Not surprisingly, Article 4(1) requires states party to establish territorial jurisdiction over the bribery of a foreign public official. The Commentary suggests that the territorial basis "should be interpreted broadly so that an extensive physical connection to the bribery act is not required," but the Commentary provides no examples of this "broad interpretation." Perhaps it is meant to cover bribes laundered through the banks of a state party, or to authorize a state party to establish jurisdiction over a briber whose only connection to that state is that the briber issues securities in that state's territory. In any event, the Convention also provides for nationality-based jurisdiction. Article 4(2) states that each party that "has jurisdiction to prosecute its nationals" for offenses committed abroad "shall" establish such jurisdiction in bribery cases, "according to the same principles." According to the Commentary, this provision means that states that only selectively exercise nationality-based criminal jurisdiction are obliged to enlarge that jurisdiction to cover bribery of foreign officials. Given that most signatories probably exercise some form of nationality-based criminal jurisdiction already, it appears that most states party will be obliged to extend such jurisdiction to bribery cases.
Article 5 of the Convention obliges parties to investigate and prosecute bribery of a foreign public official without regard to considerations of national economic interest, relations with other states, or identity of the subjects under investigation. Article 6 mandates that any applicable statute of limitations shall allow an "adequate period of time" for investigation and prosecution of bribery of a foreign public official. Article 7 provides that any state party that makes bribery of a domestic official a predicate offense for money laundering "shall do so on the same terms" for the bribery of a foreign official.
Article 8, obliging parties to take steps to prohibit off-the-books accounts and other accounting abuses, is most interesting for what it does not contain: any provision on tax deductions for bribery of foreign officials. In many countries, including many states party to the Bribery Convention, bribes to foreign public officials are tax deductible. Of course, many other states (including the United States) do not allow such deductions, and even in those countries that do permit deductions, it can be difficult for a taxpayer to take such a deduction because the tax law may require disclosure of the identity of the bribee or because it is otherwise difficult to document the transaction. Even so, the deductibility of bribes obviously undermines enforcement of any effort to stamp out bribery.
Recognizing this, the OECD in 1994 adopted a non-binding Recommendation on Bribery in International Transactions, part of which called for "meaningful steps" on "tax legislation" that may "indirectly favour bribery." In 1996 the OECD Council adopted a more pointed Recommendation on the Tax Deductibility of Bribes to Foreign Officials, which called on OECD member states to "re-examine such treatment with the intention of denying this deductibility." In 1997 an OECD report on implementation of the 1996 Recommendation observed that Norway and the Netherlands had adopted legislation limiting the deductibility of bribes to foreign officials, and that several other states are actively re-examining the issue. The 1997 report concluded that the adoption of a treaty criminalizing bribery of foreign officials would spur states to disallow tax deductions for such bribery. Time will tell whether criminalization leads to disallowance of deductibility.
Articles 9 through 11 of the Bribery Convention deal with mutual legal assistance and extradition. Article 9 provides for mutual legal assistance in criminal proceedings and in non-criminal proceedings brought against legal persons. Article 10(1) deems bribery an extraditable offense for the purposes of any extradition treaties between the parties, and Article 10(2) provides that the Bribery Convention can serve as the legal basis for extradition in the absence of an extradition treaty. Like most recent multilateral treaties on international criminal law, Article 10(3) of the Bribery Convention obliges a state party either to extradite its own nationals for bribery of foreign officials or to submit the case to its "competent authorities" for prosecution. Both Articles 9 and 10 provide that any requirement of dual criminality should be deemed satisfied in a bribery case arising under the Convention. Article 11 provides that states should designate authorities for making and receiving requests for extradition and mutual legal assistance.
Article 12 establishes a "programme of systematic follow-up to monitor and promote" implementation of the Convention. This ongoing work is to take place in the OECD Working Group on Bribery in International Business Transactions. Among other things, the monitoring process involves a system of periodic "self-evaluation," in which parties report on their own progress, and "mutual evaluation," in which the parties assess each other's performance. U.S. Undersecretary of State Stuart E. Eizenstat has described this as a "unique follow-up monitoring process" designed to ensure that parties implement the "high-standard legislation" required by the agreement.
Articles 13 through 17 are the "final clauses" of the Convention. Interestingly, Article 13 provides that non-members of the OECD can sign or accede to the agreement if they have joined the aforementioned Working Group on Bribery. The Commentary makes clear that non-members of the OECD are welcome to join the Working Group, and thus that the requirement of membership in the Working Group "should not be seen as an obstacle by countries wishing to participate in the fight" against bribery. Indeed, the Convention has already been signed by five states that are not members of the OECD: Argentina, Brazil, Bulgaria, Chile, and Slovakia.
Article 14 provides that the agreement is subject to ratification, and it designates the Secretary-General of the OECD as its Depositary.
Article 15 sets forth elaborate rules for entry into force of the Convention. It will enter into force either after a certain number of states with large "export shares" have deposited instruments of ratification, or, if the Convention is still not in force by December 31, 1998, after two or more states declare their readiness to accept its entry into force. Article 16 provides that amendment shall take place by consensus or by "such other means as the Parties may determine by consensus." Article 17 permits parties to withdraw from the Convention one year after giving notice of intention to withdraw.
Taken as a whole, the Convention would seem to mark a step forward in the international effort to battle bribery and corruption. It comes on the heels of the 1996 OAS Inter-American Convention Against Corruption and the 1996 International Chamber of Commerce Revisions to its Rules of Conduct on Extortion and Bribery in International Business Transactions. As such, the OECD Bribery Convention is part of a larger trend toward greater international regulation of corruption in international business transactions.
About the author:
Geoffrey R. Watson is a Visiting Associate Professor of Law at the Catholic University of America's Columbus School of Law in Washington, D.C. He is the author of numerous articles on international law, and he currently serves on the ASIL Advisory Committee on Insight.
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, Dec. 17, 1997, avail. at OECD website (http://www.oecd.org).
Commentaries on the Convention on Combating Bribery of Officials in International Business Transactions, Nov. 21, 1997, avail. at OECD website (http://www.oecd.org).
Implementing the 1996 OECD Recommendation on the Tax Deductibility of Bribes to Foreign Officials, May 26, 1997, avail. at OECD website (http://www.oecd.org).
Recommendation of the Council of the OECD on the Tax Deductibility of Bribes to Foreign Public Officials, April 11, 1996, 35 I.L.M. 1311 (1996).
International Chamber of Commerce: 1996 Revisions to the ICC Rules of Conduct on Extortion and Bribery in International Business Transactions, Mach 26, 1996, 35 I.L.M. 1306 (1996).
Inter-American Convention Against Corruption, Mar. 29, 1996, 35 I.L.M. 724 (1996).
Recommendation of the Council of the OECD on Bribery in International Business Transactions, May 27, 1994, 33 I.L.M. 1389 (1994).
Foreign Corrupt Practices Act, 15 U.S.C. Â§ 78dd-2.
Internal Revenue Code, 26 U.S.C. Â§ 162(c).
Edmund L. Andrews, 29 Nations Agree to Outlaw Bribing Foreign Officials, N.Y. Times, Nov. 21, 1997, at A1 (reporting extensively on disagreements over various aspects of the Convention).
Editorial, Cutting the Supply of Bribes, N.Y. Times, Nov. 22, 1997, at A14.
Editorial, Banning Bribes, Finally, Wash. Post, Nov. 28, 1997, at A26.
Stanley J. Marcus & Seth Goldschlager, An Uneven International Playing Field, Wash. Post, Dec. 17, 1997, at A25 (op-ed piece criticizing the Convention).
Letter of Stuart E. Eizenstat, Undersecretary of State for Economic, Business and Agricultural Affairs, to the Editor of the Washington Post, Wash. Post, Jan. 16, 1998, at A20 (responding to Marcus and Goldschlager).