OECD ADOPTS RECOMMENDATION
ON COMMERCIAL BRIBERY
OF PUBLIC OFFICIALS
By:
Daniel R. Lenihan
New York
On May 23, 1997, the Organization for Economic Cooperation and Development (the "OECD"), acting through its Council at Ministerial Level, adopted a Revised Recommendation on Combating Bribery in International Business Transactions (the "Recommendation"), by which the twenty-nine member nations of the OECD commit to (i) criminalize the commercial bribery of foreign public officials by the end of 1998, (ii) disallow the tax deductibility of such bribes, and (iii) adopt accounting and audit requirements aimed at the detection and disclosure of such conduct.
The OECD's action comes twenty years after the United States, in a singular effort to combat the problem, enacted the Foreign Corrupt Practices Act of 1977 (the "FCPA"), which makes it a crime for U.S. companies, and for domestic or foreign securities issuers under the jurisdiction of the Securities and Exchange Commission, to bribe foreign public officials for commercial advantage. The FCPA also makes it a crime for such securities issuers to fail to implement a system of internal accounting controls designed to detect such conduct or to falsify any book or record to conceal it. While a number of other countries--the United Kingdom, Canada and Mexico among them--have enacted statutes potentially applicable to such bribery, those laws were not drafted with commercial bribery of foreign officials specifically in mind. Consequently, those statutes reach such conduct only in limited circumstances, and apparently have been little used for that purpose. Most countries, including a majority of OECD member nations, have no criminal statutes applicable to this form of bribery and employ relatively lax accounting and audit requirements with regard thereto. A number of countries--including, significantly, France and Germany--continue to allow such bribes to be deducted for income tax purposes.
U.S. companies doing business abroad have long argued that the FCPA puts them at substantial disadvantage to foreign competitors, particularly in competing for business in certain third world and emerging nations where commercial activity is dominated by the government and where the commercial bribery of their public officials is tolerated or, in some cases, condoned. Supporting this position, the U.S. Department of Commerce estimated recently that, since mid-1994, U.S. companies have lost at least U.S.$11 billion in contracts to foreign competitors employing bribery of public officials. Considering this U.S. experience with the FCPA, it is not surprising that other nations have been reluctant to act unilaterally against the practice of foreign commercial bribery by their domestic concerns.
The OECD's Recommendation implicitly recognizes this reluctance and, therefore, is designed with the objective that OECD member nations move in unison to adopt uniform laws so that no member nation will be competitively disadvantaged by its own reforms. The Recommendation proceeds toward this end on two tracks--first, by providing a statement of agreed elements of criminal legislation for inclusion in the statutes of individual member nations and, second, by opening negotiations on a multilateral convention, which will incorporate the agreed upon elements of a criminal offense. On the legislative track, the Recommendation urges member states to introduce legislation not later than April 1, 1998 for enactment by the end of that year. On the multilateral track, the Recommendation proposes that a convention be opened for signature by the end of 1997, with the expectation of its entry into force by year-end 1998.
The agreed elements of a criminal offense are similar to those of the FCPA. The Recommendation states the offense as follows: Bribery is understood as the promise or giving of any undue payment or other advantages, whether directly or through intermediaries to a [foreign] public official, for himself or for a third party, to influence the official to act or refrain from acting in the performance of his or her official duties in order to obtain or retain business. Criminal law concepts of attempt, complicity and conspiracy would apply. It is unclear, however, whether the legality of the bribe under the law of the country of the official receiving the bribe would constitute a defense, as it does under the FCPA. The Recommendation states that the conduct would constitute an offense irrespective of "perceptions of local custom or of the tolerance of bribery by local authorities." This can be read to mean that legality may be a defense while custom and practice contrary to the written law is not a defense. How this issue will be resolved in national legislation and in the proposed convention remains to be seen.
With regard to jurisdiction, the Recommendation calls for prosecution by a state if the act of bribery is conducted in whole or in part within the state. The Recommendation goes on to urge that states which generally prosecute their nationals based upon conduct committed abroad do so in this case as well, and that states which do not so prosecute their nationals be prepared to extradite them to the state in which the bribery occurred. U.S. jurisdiction under the FCPA, as noted above, applies to U.S. companies and securities issuers regulated by the United States. The FCPA requires in addition that the bribery involve the use of the U.S. mails or other means or instrumentality of U.S. interstate commerce. The FCPA, therefore, does not apply to the conduct of U.S. nationals occurring entirely abroad, nor does it apply to the conduct of foreign nationals (other than regulated securities issuers) occurring in the United States. Accordingly, reconciliation between the FCPA and the Recommendation appears to be required on this point.
While the Recommendation represents substantial progress in the effort to combat commercial bribery of foreign public officials, whether the OECD's ambitious goal can be met is subject to some doubt. OECD recommendations are not binding on its member states--for example, a 1994 recommendation that tax deductibility of such bribes be disallowed so far has resulted in new legislation by only one member state. Further, other multilateral efforts addressed to the problem have, as yet, been unsuccessful--an anti-bribery convention sponsored by the Organization of American States and opened for signature in March 1996 has been ratified so far only by Paraguay. Finally, as indicated, potentially difficult issues of jurisdictional reach and substantive scope remain to be resolved.
