1998 Congressional HearingsIntelligence and Security
1998 Congressional HearingsTESTIMONY BEFORE THE SENATE FOREIGN RELATIONS
COMMITTEE
BY STUART E. EIZENSTAT
UNDER SECRETARY OF STATE
FOR
ECONOMIC, BUSINESS AND AGRICULTURAL AFFAIRS
ON THE
OECD CONVENTION ON COMBATING
THE BRIBERY OF FOREIGN PUBLIC OFFICIALS
IN INTERNATIONAL BUSINESS TRANSACTIONS
JUNE 9, 1998
Mr. Chairman and Members of the Committee:
Ten years ago this summer, the United States Congress passed the Omnibus Trade Act which, in part, amended our Foreign Corrupt Practices Act. The amendments were a reaffirmation of the strong support of the Congress for effective anti-bribery legislation.
As part of this action, the Congress called on the executive branch to negotiate -- with our major trading partners in the Organization for Economic Cooperation and Development -- an international agreement prohibiting bribery of foreign public officials in international business transactions.
Such action has been a goal of successive U.S. administrations since passage of the 1977 U.S. Foreign Corrupt Practices Act. As then-President Carter’s chief domestic advisor, I was involved in development and passage of the FCPA, and can attest to the high priority attached to getting a commitment from the world’s largest industrial countries that they adopt strict anti-bribery laws of their own. The goal was to internationalize the principles in the FCPA so that other countries would rise to our high standards and so that U.S. businesses would not be at a competitive disadvantage doing business abroad.
The U.S. Government, with the support of the business community and members of Congress, both Republicans and Democrats, has been working steadily for years to convince our trading partners to criminalize the bribery of foreign public officials. I am very pleased to inform you today that we have met this goal. And we have done so in a manner which will provide for freer and fairer international competition, will strengthen the rule of law in international business and will provide for a more level playing field for U.S. businesses overseas.
On December 17 of last year, on behalf of the United States, Secretary of State Madeleine Albright signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
We were right to enact the Foreign Corrupt Practices Act over 20 years ago. And we have been right to press hard for our trade competitors to enact similar prohibitions. We have succeeded with the OECD Convention. Thirty-three nations have agreed to enact criminal laws which will closely follow the prohibitions found in our statute. This is a major achievement for the rule of law.
This Convention obligates the world’s largest economies to outlaw the bribery of officials of other countries in international business transactions. This is an important issue for the United States, U.S. businesses and workers.
Let me say, Mr. Chairman, this Convention is very much in our national interest. Bribery damages economic development and hinders the growth of democracy. It hurts U.S. exporters and suppliers -- in every state and district in the U.S. -- and impedes international trade. The U.S. government is aware of allegations of bribery by foreign firms in the last year affecting international contracts worth almost $30 billion, which is not currently prohibited by criminal laws in their home jurisdictions.
Governments that signed the Convention have pledged to seek its approval, and enactment of implementing legislation, by the end of this year. The Convention is the product of strong American leadership, and early U.S. action is essential to spurring on our major competitors, whose implementation efforts will directly benefit our international interests and U.S. firms and their employees. I am confident that the OECD Convention will enter into force promptly and that the Parties will enact strong laws and enforce them effectively.
I would to like to express my thanks, Mr. Chairman, for scheduling this hearing so promptly. It is important that we lead in the ratification and implementation of this Convention, just as we did in its negotiation.
THE OECD CONVENTION
Let me briefly highlight for you what this Convention does:
The Convention obligates the Parties to criminalize bribery of foreign public officials, including officials in all branches of government, whether appointed or elected. This prohibition includes payments to officials of public agencies, public enterprises, and public international organizations. This, therefore, would cover government-controlled parastatals, such as airlines, utilities, state telecommunications companies, which are increasing important in public procurement. Only those operating on a purely commercial basis would be exempt.
The Parties must apply “effective, proportionate and dissuasive criminal penalties” to those who bribe foreign public officials. If a country’s legal system lacks the concept of criminal corporate liability, it must provide for equivalent non-criminal sanctions, including monetary penalties.
The Convention requires that parties be able to seize or confiscate both the bribe and the bribe proceeds -- the net profits that result from the illegal transaction -- or to impose equivalent fines so as to provide a powerful disincentive to bribery. Under our law, substantial fines have had significant impact on corporate compliance.
The Convention has strong provisions to prohibit accounting omissions and falsification, and to provide for mutual legal assistance and extradition. These mutual legal assistance provisions, in particular, will greatly enhance cooperation with foreign governments in cases of alleged bribery, improving both our own enforcement of the FCPA and foreign governments’ enforcement of anti-bribery laws.
The Convention will cover business-related bribes to foreign public officials made through political parties, party offi cials, and candidates, as well as those bribes that corrupt foreign public officials direct to them.
While the Convention does not cover directly bribery of foreign polticial parties, party officials, and candidates for political office, OECD members have agreed to discuss these issues on a priority basis in the OECD’s anti-bribery working group, which negotiated the Convention, and to consider proposals to address these issues by the May 1999 OECD annual Ministerial meeting.
WHAT TO EXPECT FROM OUR PARTNERS
The greatest impact of the FCPA has been achieved through enforcement measures and through the business community’s response to the law: the institution of meaningful internal corporate controls, effective internal and external auditing, and codes of conduct requiring compliance not only with the FCPA, but also with other federal criminal laws.
We would expect to see a similar dynamic in other OECD countries. The OECD Convention requirements, which closely follow the FCPA, represent a very high standard. As our OECD partners enact effective criminal and civil laws to fully implement those requirements, their business communities will need to take appropriate steps to comply.
The Convention also provides us with a mechanism to monitor, through regular peer review, both the quality of the legislation enacted by the other nations and the effectiveness of their enforcement of their legislation. We expect this review mechanism to be modeled after a highly successful one developed by the Financial Action Task Force on Money Laundering. Regular, comprehensive monitoring will provide us with the ability to determine whether other nations actually do what they have agreed to do to prohibit their nationals and their corporations from bribing to obtain business from foreign governments.
SEVERAL YEARS HENCE:
To be specific, what should we expect to see over the next several years?
I expect that within the next year we will see ratification of the OECD Convention by a majority of the OECD nations. Approval by the U.S., Germany, France and Japan, by the target date of December 31, 1998, is key to early and effective implementation. Most ratifying nations are expected to enact their implementing criminal and civil legislation along with or immediately following ratification.
Over the next two years we will see the institution of regular, comprehensive reviews of the adequacy of both implementing legislation and enforcement efforts. We also should begin to see cases prosecuted by Signatories to the Convention.
But of much greater significance, I expect that soon after the Convention enters into force -- and effective criminal prohibitions are enacted into law in the ratifying nations -- we will begin to see a sharp curtailment in the practice of bribery of foreign public officials in major international business transactions.
The demand for such bribery in some cases will still exist, but the risks for OECD companies that are tempted to acquiesce in the payment of bribes will be very substantial. For the first time our competitors in the OECD countries will have to weigh those risks against the supposed benefits of bribery. When this occurs, I am confident that our companies will face a more level playing field as they compete for international business on a fair basis.
RELATED ANTI-CORRUPTION INITIATIVES
The successful conclusion of the OECD Anti-Bribery Convention has not occurred in a vacuum. It is indicative of a changing international environment, where there is much more willingness than in the past to address directly the problem of international corruption.
The Convention is the centerpiece of a comprehensive U.S. government strategy to combat bribery and corruption. We are, for example, working with the International Monetary Fund and the multilateral development banks to focus on the debilitating effects of corruption on economic stability and development, and to encourage those institutions to help countries promote good governance.
In this Hemisphere, we successfully concluded the Inter-American Convention Against Corruption, which has recently been submitted to the U.S. Senate for its advice and consent to ratification. It is my hope that at an early time convenient for the Committee that a hearing on this Convention will be scheduled -- and to which we would be invited to testify. Three countries in Latin America -- Argentina, Brazil and Chile -- were among the five non-OECD members that signed the OECD Anti-Bribery Convention. The other two countries are Bulgaria and the Slovak Republic.
We also are working in the World Trade Organization and in regional fora in Asia and Latin America to encourage increased transparency in government procurement, the major arena for this type of foreign commercial bribery.
In the OECD as well, we are pressing our partners that allow the tax deductibility of bribes as business expenses to eliminate this preferential treatment. Since a 1996 Recommendation which called for such action, Denmark, Norway and Portugal have completed the necessary legislative action, and nine of ten remaining countries have begun the process of changing their laws so as to deny the tax deductibility of bribes. This process has accelerated with the conclusion of the OECD Convention.
IMPLEMENTING LEGISLATION
Since the Convention follows our FCPA closely, we have submitted to Congress only those amendments designed to bring our law into full compliance with its obligations and to implement the Convention.
We have tailored our proposed amendments so that our law will have a scope similar to that we expect our major trading partners to achieve as they enact their own laws. We have been careful not to put U.S. firms at a disadvantage.
First, the FCPA currently criminalizes payments made to influence any decision of a foreign official or to induce that official to do or omit to do any act, in order to obtain or retain business. An amendment will clarify that the scope of the FCPA includes payments made to secure “any improper advantage”, the language used in the OECD Convention, in order to obtain or retain business.
Second, the OECD Convention requires parties to cover prohibited acts by “any person”. The current FCPA covers only issuers with securities registered with the Securities and Exchange Commission and “domestic concerns”. An amendment will expand the scope of the FPCA to cover acts prohibited by the Convention of persons other than issuers or domestic concerns (i.e., all foreign natural and legal persons), committed while in the territory of the United States, regardless of whether the mails or a means or instrumentality of interstate commerce are used, in furtherance of the prohibited acts.
Third, the OECD Convention calls on parties with jurisdiction to prosecute their nationals for offenses committed abroad to assert nationality jurisdiction over the bribery of foreign public officials, consistent with national legal and constitutional principles. Accordingly, an amendment will provide for jurisdiction over the acts of U.S. businesses and nationals, in furtherance of unlawful payments, that take place wholly outside the United States.
Fourth, the OECD Convention includes officials of international agencies within the definition of foreign public official. Accordingly, an amendment will expand the FCPA definition of foreign official to include officials of public international organizations.
Finally, under the current FCPA, non-U.S. citizen employees and agents of issuers and domestic concerns are subject only to civil, rather than criminal, penalties. A proposed amendment to the penalty sections relating to issuers and domestic concerns will ensure that penalties for non-U.S. citizen employees and agents of issuers and domestic concerns accord with those of U.S. citizen employees and agents.
TIMING
We and all Signatories to the Convention agreed to seek approval of the Convention and the enactment of implementing legislation by the end of 1998.
We believe that it is essential that the United States meet this schedule. If we do not, other countries will use our delay as an excuse to avoid or delay their own implementation.
Certainly, we all want U.S. firms and their employees to realize the benefits of this Convention as soon as possible. The sooner we act in ratifying the Convention and enacting out implementing legislation, the sooner others will act, thereby leveling the playing field on which our companies must compete to obtain business overseas.
The business community strongly supports our efforts to ratify the Convention as soon as possible. The U.S. Council for International Business, the National Association of Manufacturers, the National Foreign Trade Council and other business groups have publicly endorsed the Convention. We have consulted closely with interested non-governmental groups, such as Transparency International/USA, whose Chairman, Fritz Heimann, is also scheduled to testify here today.
CONCLUSION
Mr. Chairman, and members of the Committee,
The successful conclusion of the OECD Anti-Bribery Convention has been a bipartisan effort, with substantial actions in pursuit of a common goal having been taken by the Congress and Administrations over the past 10 years. Those of us here today, as well as our predecessors, share in the credit for this accomplishment.
I welcome the Committee’s interest in this important issue and I urge you to take action -- to approve the OECD Convention and to ensure that the benefits of the Convention are realized rapidly.