[*PG95]A TRULY LEVEL PLAYING FIELD FOR INTERNATIONAL BUSINESS: IMPROVING THE OECD CONVENTION ON COMBATING BRIBERY USING CLEAR STANDARDS
Abstract: Combating bribery in international business has become increasingly important in a global economic environment in which deregulation and privatization are popular trends. The Organisation for Economic Co-Operation and Developments (OECDs) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions is an important step towards leveling the playing field for foreign companies competing for business abroad. However, this Note concludes that, in order to improve the uniform application of the Convention, the Conventions signatory parties should: (1) adopt a minimum five-year statute of limitations requirement; (2) adopt a five-year maximum term of imprisonment for natural persons convicted of bribery; and (3) impose a fine of not less than $175,000 U.S. dollars (USD) for individuals convicted of bribery.
Bribery in the conduct of international business has been linked to a host of challenging international problems: causing long-term damage to economic development and the growth of democratic and transparent institutions, weakening global security, and contributing to worldwide poverty.1 At a minimum, bribery of foreign officials distorts the competitive forces of market economies.2 The bribery of [*PG96]public officials has become increasingly important for a global economic environment in which deregulation and privatization are popular trends.3
The Organisation for Economic Co-Operation and Development (OECD) has attempted to level the playing field for foreign companies competing for business outside their home country by adopting the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the Convention) and the 1997 Revised Recommendation of the Council on Combating Bribery in International Business Transactions (the Recommendation).4 While these documents have provided a strong foundation for a coordinated effort to curb the economic impact of bribery in international business, the uniform and effective implementation of these documents is a serious, if not insurmountable, challenge.5 This Note addresses the numerous challenges associated with the effective implementation of the OECD Convention and suggests that clearer standards for the statute of limitations and sanction provisions should be adopted in order to improve the uniform application of the Conventions provisions.
Part I of this Note surveys the history and origins of the OECD Convention, paying particular attention to the influence of the U.S. and the Foreign Corrupt Practices Act (FCPA). Part II outlines the basic requirements of the Convention and details the Conventions current liability and sanction provisions. Part III explains the Conventions enforcement and evaluation mechanisms and describes the Phase 1 and Phase 2 evaluation programs. Finally, Part IV of this Note illustrates the problems with the multilateral application of the Convention and advocates for the adoption of a minimum five-year statute [*PG97]of limitations requirement, a five-year maximum term of imprisonment for natural persons convicted of bribery, and the possibility of imposing a fine of $175,000 U.S. Dollars (USD) upon legal persons convicted of bribery.
The OECD is a group of thirty countries sharing a commitment to democratic government and the market economy.6 Member countries are mostly large, industrialized nations.7 The OECDs primary focus is building strong economies in its member countries by improving efficiency, honing market systems, and expanding free trade.8 Given these objectives, it is not surprising that the OECD has recently dedicated its effort to combating bribery and corruption in international business transactions, which can undermine good governance and economic development, and distort international competitive conditions.9
The fight against international bribery and corruption began in the U.S. in the late 1970s.10 Against the backdrop of the numerous scandals uncovered by the Watergate hearings, investigators found many instances of U.S. companies bribing public officials in foreign countries.11 In total, over 400 companies, including seventeen Fortune 500 companies, admitted to paying bribes of some sort while transacting international business.12 In 1977, Congress responded to these improprieties by passing the FCPA, which had two main tenets: accounting safeguards and anti-bribery provisions.13 The accounting [*PG98]safeguards of the FCPA required companies to establish internal accounting controls to prevent the covering-up of improper transactions.14 The anti-bribery provisions made it illegal to bribe a foreign official for the purpose of obtaining or retaining business or securing any improper advantage.15
Following the passage of the FCPA, U.S. businesses operated at a disadvantage, relative to foreign competitors who continued to pay bribes without fear of penalty, in the competition for international business.16 By 1988, Congress had directed the Executive Branch to seek a level playing field for U.S. businesses by encouraging U.S. trading partners to enact legislation similar to the FCPA.17 Consequently, in 1994, the OECD began officially coordinating an effort to combat the bribery of foreign public officials in international business transactions .18 Thirty-four countries, including twenty-nine OECD member countries and five non-member countries, signed the Convention on December 17, 1997.19 The Convention entered into force on February 15, 1999 with the chief aim of leveling the playing field for companies competing for business outside their home countries.20
While many other organizations have addressed the problems of international corruption and bribery, the OECD Convention is one of the most recent and comprehensive global initiatives.21 Not surpris[*PG99]ingly, given the strong influence of the United States, the OECD Convention incorporates many aspects of the FCPA.22 The Convention is only concerned with active corruption or briberythe offense committed by the person who promises or gives the bribe, rather than the individual who receives the bribe.23 To this end, the Convention seeks functional equivalence among the measures taken by signatory countries to sanction bribery of foreign public officials, without requiring complete uniformity or changes in fundamental principles of a states legal system.24 While this approach makes it easier for countries to initially adopt the Convention, it makes the even-handed application of the Conventions principles between nations very challenging, if not impossible.25
The Convention requires signatory countries to establish criminal liability for the active bribery of foreign public officials, referring to the offense committed by the person who promises or gives the bribe, rather than the offense of the official accepting a bribe.26 Article 1 of the Convention requires countries to criminalize the offering, promising, or giving of a bribe, either directly or through an intermediary, to a foreign public official in order to gain an improper advantage in the conduct of international business.27 Signatory countries must also extend criminal liability to those who incite, aid, abet or authorize the bribery of a foreign public official.28
[*PG100] Those found guilty of bribing or being involved in the bribery of a foreign public official (including legal persons, if applicable under Article 2 of the Convention) must be punished in accordance with the principles of Article 3.29 Article 3 requires that [t]he bribery of a foreign public official shall be punishable by effective, proportionate and dissuasive criminal penalties . . . comparable to that applicable to the bribery of the [countrys] own public officials . . . .30 For individuals, such punishment must include deprivation of liberty sufficient to enable effective mutual legal assistance and extradition.31 For legal persons to whom criminal liability does not extend, signatory countries must ensure that legal persons shall be subject to effective, proportionate and dissuasive non-criminal sanctions, including monetary fines, for bribery of foreign public officials.32 In addition, signatory countries must seize and confiscate bribes, including the proceeds and property value corresponding to the bribery of foreign public officials, or impose monetary sanctions with similar effects.33
Article 12 of the Convention calls for the OECD Working Group on Bribery in International Business Transactions (Working Group) to carry out a program of systematic follow-up to monitor and promote the full implementation of the Convention.34 Monitoring of the implementation of the Convention is divided into two phases.35 Phase 1, which began in April 1999 and was completed in late 2002, was [*PG101]primarily aimed at evaluat[ing] whether the legal texts through which participants have implemented the Convention meet the standard set by the Convention as well as initial actions to implement the Recommendation. It provided an opportunity for countries to learn from the experiences and approaches of others.36 The Phase 1 peer evaluations were vertical, or based on examinations country-by-country.37 These initial evaluations consisted of each countrys replies to a Working Group questionnaire, consultation between the examined countrys officials and the Working Group, and adoption and publication of a report on the examined countrys performance.38 Thus far, the Working Group has reviewed the implementing legislation of all signatory countries through Phase 1 evaluations.39
Phase 2 evaluations will study the structures put in place to enforce the laws and rules implementing the Convention and will assess their application in practice.40 This second round of evaluations will include horizontal analysis or country-to-country comparisons.41 The focus of Phase 2 evaluations will also be broader and include the non-criminal aspects of the 1997 Revised Recommendation dealing with the tax deductibility of bribes.42 Phase 2 evaluations began at the end of 2001 and will continue through 2005.43
Like Phase 1, the Phase 2 evaluations will include country replies to a common questionnaire, consultation between the examined countrys officials and the Working Group, and evaluative reports on each countrys performance.44 However, Phase 2 will also include two to three day on-site visits to each country examined, providing an effective way to obtain information on enforcement and prosecution.45 [*PG102]The on-site visits also offer the possibility of meetings with magistrates, police, tax officials, and other authorities responsible for applying the law, as well as representatives from the private sector or civil society to ascertain their views.46 The Phase 2 on-site evaluations will be conducted by one or two members of the Secretariat and up to three experts from each lead examining country chosen in consultation with the country examined.47
While the Conventions evaluation mechanisms profess and demonstrate a strong commitment to the full implementation of the Convention through a rigorous and systematic program of multilateral monitoring and evaluation,48 there are a number of systemic problems that the Convention does not adequately address.
With the Phase 1 evaluations complete, the Working Group has already reviewed and reported on all countries compliance with the Convention and Recommendation.49 Taken together, the definition of the offense of bribing a foreign public official (Article 1) and the associated sanctions (Article 3) were intended to create an effective deterrent to the bribery of foreign public officials by combining threats of criminal prosecution, monetary sanctions, seizure of bribes or associated property, as well as the public stigma from a conviction for bribery.50 Yet, one of the chief failings of the Convention is that it does not set forth concrete standards to which signatory countries will be held.51 In implementing the Convention, member countries can [*PG103]pass legislation at different ends of a rather broad spectrum as great deference is given to individual countries legal systems.52 Member countries are not required to incorporate any precise terms or language when drafting legislation, which has led to some countries enacting more stringent or lenient standards than others.53 While this flexible framework undoubtedly was helpful in gaining the ascension of a large number and variety of countries,54 it also presents a challenge to the uniform implementation and application of the Convention.
In fact, the Phase 1 reports have identified numerous problems such as inadequacies in the definitions of foreign public officials, missing elements of the offense of bribing a public foreign official, and insufficient liability for legal persons.55 The Working Group has informed a number of signatory countries that these definitional deficiencies have prevented their successful implementation of the Convention.56 For instance, the Working Group determined that Argentina had not satisfied the requirements of the Convention because it had not criminalized the bribery of agents or representatives of international organizations and public officials of organized foreign areas or entities.57 While these definitional deficiencies can easily be [*PG104]identified and remedied, there are other inconsistencies that require unilateral action. In order to ensure that the Convention is implemented in a way that honors its aim of achieving functional equivalence among the measures taken by member countries,58 there are two particular areas in which more concrete standards should be adopted in order to facilitate the uniform application of the Convention.
To begin with, a more precise standard should be utilized in defining the statute of limitations requirement. Article 6 of the Convention requires that any statute of limitations applicable to the offense of bribing a foreign public official, shall allow an adequate period of time for the investigation and prosecution of this offence.59 Signatory countries are left to decide what constitutes an adequate period of time with no further guidance from the text or Commentaries of the Convention.60 The Working Group has noted in several Phase 1 country reports that the question of what length statute of limitations is required by the Convention is a general problem calling for a comparative analysis in Phase 2.61
However, the Working Group has expressed concern that the three-year statutes of limitations enacted by a number of countries, such as France, Hungary, Japan, and the Slovak Republic, may not provide an adequate period of time for the investigation and prosecu[*PG105]tion of bribery of a foreign public official.62 Australia, Canada, and the United Kingdom, on the other hand, have no time limitation on the prosecution of either natural or legal persons.63 In particular, the Working Group expressed serious doubts about the effectiveness of Denmarks two-year statute of limitations for legal persons.64 Given the secretive nature of acts of corruption, offenses are often not discovered until several years after being committed.65 Thus, the Working Group is concerned that shorter statutes of limitations will make the coherent and effective implementation of the Conventions sanctions difficult and may also pose an obstacle to the provision of mutual legal assistance.66
While the Working Group has suggested that the statute of limitations issue should be reevaluated in Phase 2, the same dormant nature of bribery offenses that makes necessary a longer statute of limitations may also limit the effectiveness of Phase 2 comparative [*PG106]analysis. For instance, it will be difficult for the Working Group to determine whether statutes of limitations of varying lengths have achieved a functional equivalence in their application because most Phase 2 evaluations will take place only four to six years after the Convention entered into force in particular countries, making it likely that a large number of offenses will not yet have been prosecuted.67 Rather than relying on an ill-timed attempt to determine whether statutes of limitations of varying lengths have achieved functional equivalence, it may be wiser for the Working Group to survey the signatory countries implementing legislation and find an acceptable, but concrete, minimum length requirement for all statutes of limitations. In fact, a majority of countries have adopted a five-year statute of limitations, pointing to a strong consensus among signatory countries that a statute of limitations of no less than five years is an adequate period of time for the investigation and prosecution of bribery offenses.68 Moreover, the adoption of a minimum five-year statute of limitations requirement is not only consistent with the Conventions functional equivalence principle, 69 but also does not require fundamental changes in any states legal system.70
Another area in which the Convention would benefit from a clearer standard is the sanctioning of natural and legal persons. Article 2 of the Convention requires that parties establish liability of legal [*PG107]persons for the bribery of a foreign public official but, in the event that criminal liability is not applicable to legal persons under the partys legal system, the party is not required to establish such criminal responsibility.71 The Working Group has noted that a number of countries have passed sanctions that vary a great deal from one another and that these disparities should be monitored through the Phase 2 evaluations.72 For instance, several countries, including Austria, Mexico, The Slovak Republic, Spain, and Sweden, enacted relatively weak sanctions for legal persons committing bribery offenses.73 Most of these countries enacted sanctions that call for less than three years of imprisonment and/or a relatively small fine.74 In fact, Swedens maximum term of imprisonment for bribing a foreign public official is two years; Mexicos maximum fine for the same offense is $1,800 USD.75 At the other end of this spectrum are a number of countries that have enacted comparatively strong punishments for natural persons convicted of bribing a foreign public official. Luxembourg, for example, imprisons bribery offenders for between five and fifteen years while the United States imposes a fine of up to $100,000 USD.76
[*PG108] The Phase 1 evaluations have also uncovered a number of problems with the sanctioning of legal persons.77 Japan, for instance, was cited by the Working Group as adopting fines for legal persons that may not be sufficiently effective, proportionate and dissuasive.78 While Japan provides for fines up to 300 million yen (approximately $2.7 million USD), the Working Group felt that these sanctions were not proportionate to the massive size of many large Japanese companies.79 Yet, the Working Group found Australias sanctions for legal persons acceptable although they only call for a maximum fine of $330,000 Australian Dollars (AUD) (approximately $175,000 USD).80
The broad range of sanctions enacted by signatory countries is particularly problematic because the standard set by the Convention is itself amorphous and provides minimal guidance.81 Article 3 merely provides that bribery by natural or legal persons be punishable by effective, proportionate and dissuasive penalties comparable to those applicable to the bribery of the countrys own public officials.82 In the case of natural persons, penalties must include the deprivation of liberty sufficient to enable effective mutual legal assistance and extradition.83 This is a difficult standard to measure because it provides no point of reference for determining whether measures enacted by signatory countries satisfy the Conventions minimum requirements.84 And, even assuming all in the broad range of sanctions and penalties adopted by the signatory countries do prove to be sufficiently effective, proportionate and dissuasive, the wide variance of penalties imposed for similar offenses contradicts one of the Conventions main goals: achieving functional equivalence among the measures taken by signatory countries.85
[*PG109] However, a standard-less approach was not acceptable to the Working Group who, in their review of Canada, expressed concern that Canadas failure to establish either minimum or maximum fines for either natural or legal persons may make the sanctions insufficiently dissuasive.86 Thus, not only do the current provisions of the Convention fail to adequately define what sanctions are considered effective, proportionate and dissuasive, but the Working Group has been critical of countries who have left the provision to judicial interpretation.87
In addition to requiring that sanctions be effective, proportionate and dissuasive, the Convention or its Commentaries should include minimum standards for punishing both natural and legal persons. For instance, the Working Group has suggested that a maximum three-year term of imprisonment may be too weak a punishment for natural persons convicted of bribery.88 The maximum five-year term of imprisonment adopted by Korea, Switzerland, and the U.S. is the shortest maximum standard meeting the approval of the Working Group and should be adopted as the minimum standard for signatory countries.89 Although twelve signatory countries currently fall below this standard,90 several countries have already recognized the need to increase their maximum term of imprisonment to at least five years in order to meet the requirements of the Convention.91 Since monetary fines are generally imposed in addition to imprisonment, and because the level of the fines is closely related to the relative economic pros[*PG110]perity of the signatory nation,92 the level of monetary sanctions imposed on natural persons could safely be left to the discretion of the signatory countries so as not to require fundamental changes to countries legal systems.93
Finally, for legal persons convicted of bribery, the Convention should require that signatory countries could impose a fine of at least $175,000 USD. Again, this is the smallest maximum fine meeting the approval of the Working Group in their Phase 1 country evaluations.94 While this amount is relatively low compared with several countries that may impose fines of greater than $2 million USD, twelve countries do not currently meet this proposed standard.95 In addition, countries remain free to supplement fines with civil and administrative sanctions.96 This proposed standard strikes a balance between the Conventions two chief aims: it improves the likelihood that the measures adopted by signatory countries will be functionally equivalent without requiring fundamental changes to countries legal systems, which might be the case if specific administrative sanctions were required.97
Once standard, minimum sanctions for legal and natural persons are established, Phase 2 evaluations will be useful in determining whether signatory countries have enacted provisions that are truly functionally equivalent. However, without standard, minimum sanctions, signatory countries will invariably punish similar offenses with materially different sanctions, thwarting the Conventions functional equivalence cornerstone.
Bribery is an expensive and injurious problem that properly demands comprehensive, worldwide attention. While a number of or[*PG111]ganizations have attempted to combat this problem, the OECDs Convention on Combating Bribery of Foreign Public Officials in International Business Transactions is the most comprehensive attempt to curb the effects of international bribery. Though the current Convention is a strong first step toward achieving functional equivalence between the measures adopted by the Conventions signatory countries, more precise standards should be adopted for the statute of limitations and sanction requirements in order to ensure the uniform implementation of the Convention. The Conventions signatory parties should: adopt a minimum five-year statute of limitations requirement, adopt a five-year maximum term of imprisonment for natural persons convicted of bribery, and impose a fine of not less than $175,000 USD for individuals convicted of bribery. These amendments to the Convention will aid the consistent application of the Conventions principles and promote functional equivalency between the measures enacted by signatory countries, without requiring perfect uniformity or fundamental changes in parties legal systems.