Regulating Corporate Bribery in International Business

Anti-corruption in the UK and Germany

Nicholas Lord

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317068853
• Edition: 1
• Topic: Derecho
• Subtopic: Derecho penal

This book is about the regulation of corporations that use bribery in international commerce to win or maintain overseas business contracts and interests. Recent large-scale cases involving multinational corporations demonstrate how large commercial 'non-criminal' enterprises are being implicated in substantive overseas bribery scandals and illustrate the difficulties faced by responsible enforcement authorities in the UK and Germany. The book imports concepts from regulation theory to aid our understanding of the emerging enforcement, self-regulatory and hybrid responses to transnational corporate bribery. Lord implements a qualitative, comparative research strategy involving semi-structured interviews, participant observation and document analysis to provide empirical insights into this relatively invisible area of criminological interest. Despite significant cultural differences between the jurisdictions, this book argues that UK and German anti-corruption authorities face procedural, evidential, legal, financial and structural difficulties that are leading to convergence in prosecution policies. Although self-regulatory and hybrid mechanisms are aiding the response and gaining some level of regulation, the default position is one of accommodation by state agencies, even where the will to enforce the law is high. This book is essential reading for academics and students researching corporate and white-collar crimes and the concept of regulation more generally, as well as law enforcement agencies and international and intergovernmental organisations concerned with anti-corruption.

Chapter 1
Introduction

[C]orporations have committed crimes against one or more of the following classes of victims: consumers, competitors, stockholders and other investors, inventors, and employees, as well as against the state in the form of tax frauds and bribery of public employees. These crimes are not discrete and inadvertent violations of technical regulations. They are deliberate and have a consistent unity … the criminality of the corporations, like that of professional thieves, is persistent: a large proportion of the offenders are recidivists (Sutherland, 1983: 227).

This book is about the ‘regulation’ of corporations that use bribery in international business transactions to win or maintain business contracts and business interests in overseas jurisdictions (shortened to transnational corporate bribery throughout this book). Such bribery involves at least two willing or consenting actors who may either actively offer, promise to give or give, or passively request, agree to receive or accept, bribes and inducements. (The bribe receiver may of course be more ‘active’ in demanding bribes but such distinctions are made in law.) The direction of these bribes is from corporations to foreign public officials in the context of a corporation’s overseas business. (Of course, ‘private to private’ bribery (that is, commercial bribery) also occurs, but the focus of this book is on ‘private to public’ bribery.) These bribes take myriad forms, from cash payments (potentially of £billions) through to indirect hospitalities (including shopping trips, tickets for sports events and so on) to non-monetary favours such as the provision of prostitutes or employment for self or social network. There is intent behind such bribes and this is usually to ensure the commission or omission of certain acts that breach the duties of public officials for organisational gains (that is, for the benefit of the corporate entity). These include the awarding or continuance of multi-million pound contracts for the corporation, though inevitably individual gains usually also accompany this.

One of the most prominent and recognisable of scandals emanates from the UK – that of BAE Systems, the UK’s largest arms manufacturer. In 1985, the UK and Saudi Arabian governments signed the contract for the initial al-Yamamah I arms deal (al-Yamamah II followed in 1988) where it was agreed that the UK would provide 72 Tornado and 30 Hawk aircraft, amongst other defence equipment, in return for oil (up to 600,000 barrels a day) – BAE was appointed to be the prime contractor to deliver the deal and it is estimated to have been worth around £43bn. However, to facilitate the deal, BAE was alleged to have paid more than £6bn in bribes and inducements. The finances for the bribes were generated by inflating the prices of the defence equipment in order for ‘kickbacks’ to be provided. Such kickbacks, or bribes, included extravagant travel expenses, shopping trips, prostitutes, a private jet and cash payments, amongst others, to Saudi Arabian officials.

A Serious Fraud Office¹ (SFO) investigation into the alleged bribery was halted in 2006 following government pressure where the UK Prime Minister at the time, Tony Blair, alluded to national security fears. It was asserted that Saudi Arabia had threatened to withdraw counter-terrorism assistance and intelligence should the investigation continue. Economic interests were also endangered as Saudi Arabia threatened to withdraw from a £10bn deal to buy Eurofighter Typhoons. However, this was an impermissible rationale, since halting an investigation for economic reasons would contravene international conventions (Chapter 4). Scrutiny of BAE by interested parties also led to investigations into bribes given by BAE Systems to the Czech Republic, Romania, Qatar, Chile and Tanzania to secure sales of their defence equipment. This culminated in 2010 when the SFO agreed a ‘plea-bargain’ with BAE in relation to accusations of substantial bribery in Tanzania, although BAE admitted only to relatively minor accounting offences and not bribery. As part of this deal, where BAE paid a £500k fine plus an ex gratia payment of £29.5m to Tanzania, it was agreed that all SFO investigations into BAE would be terminated and that the SFO would not investigate or prosecute any member of BAE for any conduct (disclosed or not) preceding 5 February 2010. The sentencing judge, Mr Justice Bean, expressed several concerns over the settlement that had been agreed with BAE.²

The BAE case is just one of an increasing number to be investigated, all of which demonstrate how large commercial ‘non-criminal’ enterprises are being implicated in substantive overseas bribery scandals. These include large-scale cases involving multi-national corporations (MNCs) such as Siemens, GlaxoSmithKline, Ferrostaal, Oxford Publishing, Innospec, Hewlett-Packard and MAN Group, amongst others – this list is becoming more extensive as international pressure to investigate and prosecute such cases increases. These have received extensive publicity in the business press, and variable publicity in mainstream newspapers, radio and television.

Hence, as in the words of Edwin Sutherland (1883–1950) above, ‘corporations have committed crimes’. Sutherland’s ground-breaking work identified corporations as recidivist offenders and in doing so his work challenged the views of early criminologists concerned with the individual and sociological pathologies of lower class offenders (Croall, 2001: 2). It remains legally³ and normatively contested whether a corporation (that is, legal person) itself can commit a crime and thus bear responsibility, or whether it is the individuals (that is, natural persons) within the corporation that ought to be culpable. However, within the vision set out by Sutherland, it is plain that the organisational cultures and structures of corporations create conditions in the context of international business within which bribery can take place: the difficulties are to judge the extent to which such facilitating conditions are deliberate or not, and whether this can be demonstrated in a court or to a regulator to the standard of proof required.

As business transactions become more transnational in nature, both increased white-collar crime opportunities and the possibility of externalising risk and thus evading prosecution for those involved in bribery have been created (Gibbs et al., 2010). For example, corporations using third parties and intermediaries in overseas jurisdictions to bribe to win or maintain contracts distances this conduct from those who ought to be held accountable. The global marketplace also intensifies the impacts of white-collar crimes and risky transactions as we have seen with the global economic crisis and subprime mortgage lending (Gibbs et al., 2010: 544). How nation-states go about dealing with such ‘corporate offenders’ within this international context in relation to overseas bribery forms a key focus of this book.

While the nature of the offender is contested, to some extent, so are the impacts of bribery and corruption. Some would accept such bribery as the cost of development or the unavoidable interdependence between licit and illicit commerce in ‘grey’ markets (for example, legitimate corporations acquiescing to overseas, cultural demands/expectations for bribes to be given to facilitate business). For example, the comments of Prince Bandar bin Sultan, the former Saudi Arabian ambassador to the United States, and significant player in the Al-Yamamah arms deal, support such a position:

But the way I answer the corruption charges is this. In the last 30 years, we have made – we have implemented a development program that was approximately – close to $400 billion worth. You could not have done all of that for less than, let’s say, $350 billion. Now, if you tell me that building this whole country and spending $350 billion out of $400 billion, that we had a – misused or get corrupted with $50 billion, I’ll tell you, ‘Yes’. But I’ll take that any time. But more important, who are you to tell me this? I mean, I see every time all the scandals here, or in England, or in Europe. What I’m trying to tell you is, so what? We did not invent corruption (Prince Bandar bin Sultan, quote from PBS Frontline Documentary, Black Money, 2009).

Others would argue that corruption and bribery have devastating political, social, economic and environmental harms and consequences (Chapter 2; see also Rose-Ackermann, 1997; Delaney, 2007; Transparency International, 2013), in particular for developing countries where much corporate bribery is directed (though in what proportion is unknown):

Corruption is an insidious plague that has a wide range of corrosive effects on societies. It undermines democracy and the rule of law, leads to violations of human rights, distorts markets, erodes the quality of life and allows organized crime, terrorism and other threats to human security to flourish. This evil phenomenon is found in all countries – big and small, rich and poor – but it is in the developing world that its effects are most destructive. Corruption hurts the poor disproportionately by diverting funds intended for development, undermining a Government’s ability to provide basic services, feeding inequality and injustice and discouraging foreign aid and investment. Corruption is a key element in economic underperformance and a major obstacle to poverty alleviation and development (Kofi Annan, former UN Secretary-General, in the foreword to the United Nations Convention against Corruption (UNCAC) 2003, 2004: iii).

It is this latter perspective that views corruption as a harmful and ‘bad’ activity (as opposed to a means to an end, that is, corruption not being inherently harmful per se) that has shaped the anti-bribery and anti-corruption agenda, in particular through the creation of international conventions which aim to harmonise legal (and normative) understandings of bribery and corruption across jurisdictions. Since the creation of the Organisation for Economic Cooperation and Development’s (OECD) Anti-Bribery Convention 1997 and subsequent pressure for nation-states to conform, such corporate bribery in international business has been placed on the agenda of national governments. Sovereign states that do not have an active enforcement stance against transnational bribery are facing intense criticism from (i) international and intergovernmental organisations such as the OECD and the United Nations (UN) and (ii) international anti-corruption bodies including non-governmental organisations such as Transparency International (TI). International measures such as the OECD Anti-Bribery Convention, the UN conventions and numerous regional (for example, European Union and Council of Europe) level conventions provide anti-corruption frameworks within which to address these crimes – these often incorporate monitoring and evaluation mechanisms (for example, the Group of States against Corruption (GRECO) and the OECD Working Group on Bribery) to review the efficacy of national anti-bribery and corruption policies and enforcement practices, though serious measurement and conceptual issues remain.

Corruption and corporate bribery, then, are ‘serious business’ and the associated moral-social-economic-political-environmental harms have led concerned parties to seek criminal justice and other control mechanisms. But implementing international frameworks at the national criminal justice level is not straightforward. For example, while countries sign and ratify international frameworks, some jurisdictions often possess insufficient infrastructures and resources to enforce them (Shover and Hochstetler, 2006: 107). State corruption may also reduce enforcement while powerful nations may have the ability to influence the creation of international treaties and therefore protect their business activities by resisting criminalisation or refusing to ratify treaties (Michalowski and Bitten, 2005). There is no widely accepted or effective transnational law-making and law enforcement body or mechanism, though models of transnational regulation and standard-setting have been proposed (see for example Braithwaite and Drahos, 2000; Djelic and Sahlin-Andersson, 2006; Abbot and Snidal, 2013). Enforcement authorities, however, generally remain constrained by different domestic operational frameworks and jurisdictional boundaries. It is here that a key contradiction becomes evident: in short, national authorities are pressured to respond to trans-national corporate bribery using inter-national frameworks for enforcement that are distanced from context and the cultural and internal/external pressures faced at the operational level.

At the national level, the particular nature of transnational corporate bribery creates substantial difficulties for enforcement responses: the social practices, relations and processes that characterise such bribery are organised across jurisdictional boundaries (for example, via intermediaries or third parties; money laundering) and are often ambiguous or made to seem so (for example, exchange of legitimate services); it is clandestine and often involves consenting actors (for example, as both parties benefit from the corrupt transaction); there is a lack of identifiable consequences (for example, few direct victims or harms); and the state faces problems of knowledge and power when attempting to access corporate subsystems (that is, internal cultures and processes) (see Gill, 2000; Mayntz, 1993).

This problem of transnational corporate bribery and its control have received insubstantial empirical attention within the elite criminological academic community and remains under-researched, under-theorised and under-conceptualised – a simple analysis of the content of major criminological journals over the period 2000 to 2013 reinforces this.⁴ In this timeframe, the British Journal of Criminology contained only two publications related to transnational corporate bribery that were directly relevant to the substantive focus of this book. These were an analysis of the crimes of neo-liberal rule in occupied Iraq (Whyte, 2007) and a comparative study of corruption derived from a public lecture (Zimring and Johnson, 2005). In contrast, the journal contained 315 separate publications on the subject of ‘murder’ and 207 on the subject of ‘burglary’ over the same period. Likewise, the leading American journal Criminology contained 0 (zero) publications on the subject of transnational corporate bribery: while a number of hits for ‘corruption’ were available, these focused primarily on police corruption and low-level corruption. This trend is reflected in a number of other leading criminological journals.⁵

Both in the official narratives of international organisations and their conventions and in the narratives of criminological theory, the problem of controlling trans-nationally organised corporate bribery has not been sufficiently analysed or theorised. Criminological insights have been preoccupied with problems of white-collar and corporate crime (so variously defined) within (rather than across) nation-states. This book therefore imports concepts from regulation theory to understand and frame the emerging control responses in what is a broad regulatory landscape. Furthermore, this study provides comparative, empirical insights into this relatively invisible area of criminological interest to aid our understanding of enforcement responses (such as criminal prosecution and civil sanctioning), self-regulatory responses (such as, business initiatives and private-private regulation) and hybrid responses (such as self-reporting, and self-investigation)to transnational corporate bribery in addition to making major contributions to wider conceptual and substantive concerns regarding policing and regulation at the transnational level. The study also makes a contribution to an area of public policy that is evolving quickly at a time when there is major pressure on public finances resulting in significant austerity measures. High-cost, labour-intensive criminal law enforcement is part of this debate and the inclusion in this research of alternative responses to the control of transnational corporate bribery, and criminal behaviour more broadly, is timely given this macro-social context and concern with public funding.

In the course of this book, I hope to present a framework that rethinks and questions the nature of regulation and regulatory theory. There is often a tendency to think of regulation in its narrow conception, focusing on the formal institutions of regulation (for example, state regulators) and where focus has been placed on non-state institutions there remains a preoccupation with regulatory mechanisms that are created with the primary intention to control behaviour (for example, formal, direct policy responses). But behaviour change may also come about as a secondary effect of mechanisms created for other primary purposes (such as for profit creation) and therefore have a more indirect impact.

With this in mind, a broad and inclusive definition of ‘regulation’ is used (Chapter 3) and is characterised by a landscape that incorporates a diverse array of state (for example, investigatory and prosecutorial agencies) and non-state (for example, private sector enterprises, non-governmental and intergovernmental organisations) ‘regulatory’ actors that are involved in the direct and indirect negotiation of regulation. Regulation in this sense may be considered as a social relationship between the ‘regulator’ and ‘regulatee’ where compliance outcomes and behaviour changes are accomplished and negotiated through the interactions of these social actors over time. In this context, analytical focus can be shifted away from a sole concern with formal regulatory institutions (and their strategies) and from narrow conceptions of regulation towards understanding the broader processes, practices and relations that shape behaviour within corporations and markets. Viewing the regulatory landscape at the level of populations, as opposed to the level of individual corporations per se, enables analysis of the mixture of responses that are manufactured or emerge more organically and which may be direct or indirect in their influence, but together serve to regulate the markets within which corporations operate.

Thinking in these terms enables conceptual and theoretical development in relation to how behaviour in corporations is regulated and changed. However, it is important to note that the role of state and non-state ‘regulators’ that aim to regulate transnational corporate bribery remain a fundamental part of the regulatory landscape, and the argument here is not that responsibility for regulation ought to be shifted away from these actors – the public authorities and concerned non-state actors should (and do) retain a primary role in regulation, and for this reason the book returns to address ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of Figures and Tables
• List of Abbreviations
• Acknowledgements
• Dedication
• 1 Introduction
• 2 What is ‘Transnational Corporate Bribery’ and Why Do We Need to Regulate It?
• 3 Conceptualising the ‘Regulatory’ Framework: Policing as Regulation
• 4 Legal Frameworks for Enforcement: From the International to the National
• 5 Enforcing the Law: Structure, Practice and Discretion
• 6 Theories of Enforcement: Prosecution Policies
• 7 Theories of Self-regulation: Manufactured and Organic Self-regulatory Practices
• 8 Understanding ‘Regulatory’ Performance and Determining ‘Adequate’ Enforcement
• 9 The ‘Default Position’: Accommodating Transnational Corporate Bribery
• Bibliography
• Index