OECD Bribery Convention

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George Monkhouse Kleuser March 25, 2010 The OECD Anti-Bribery Convention: Implementation, Approaches and Interests of Arms Exporting States Introduction: The following paper analyzes the adoption and the application of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 1997 (the Convention), an initiative by the Organization for Economic Cooperation and Development, by key arms-exporting states. Of particular interest are the disparities of implementation performance among several key OECD member-states and also the reasons certain non-member states have ratified or expressed the desire to ratify the Convention. The following paper will discuss the Convention’s development from American domestic law to its implementation through the OECD at the international level. The application and performance of the United States, France and the United Kingdom, all OECD member- states, will then be analyzed as will the performance and reasons for accession to the Convention by non-OECD states Russia and Israel. Finally, we will conclude in examining the reasons for accession and differing levels of implementation by use of various theoretical frameworks. In the exportation of armaments corruption is of particular interest due to the facility of the practice from both the supply and demand side. Moreover, a year 2000 Gallup poll among emerging countries’ business executives showed that construction and arms industries were viewed as the most corrupt by far, and that low salaries of public servants and

Transcript of OECD Bribery Convention

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George Monkhouse Kleuser

March 25, 2010

The OECD Anti-Bribery Convention:

Implementation, Approaches and Interests of Arms Exporting States

Introduction:

The following paper analyzes the adoption and the application of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 1997 (the Convention), an initiative by the Organization for Economic Cooperation and Development, by key arms-exporting states. Of particular interest are the disparities of implementation performance among several key OECD member-states and also the reasons certain non-member states have ratified or expressed the desire to ratify the Convention. The following paper will discuss the Convention’s development from American domestic law to its implementation through the OECD at the international level. The application and performance of the United States, France and the United Kingdom, all OECD member-states, will then be analyzed as will the performance and reasons for accession to the Convention by non-OECD states Russia and Israel. Finally, we will conclude in examining the reasons for accession and differing levels of implementation by use of various theoretical frameworks.

In the exportation of armaments corruption is of particular interest due to the facility of the practice from both the supply and demand side. Moreover, a year 2000 Gallup poll among emerging countries’ business executives showed that construction and arms industries were viewed as the most corrupt by far, and that low salaries of public servants and little risk of punishment for bribery the facilitating factors.1 This interest in corruption within the domain of arms exports dictates the choice of the aforementioned countries for case study. On the supply side, foreign suppliers may manipulate tax codes in order to bribe foreign officials, a practice that is all the more attractive as huge R&D costs compel producers to actively seek export opportunities.2 From a demand side perspective, the fact that governments are typically the sole providers of defense services means that regulations typically confer power to officials in charge of authorizing contracts. Coupled with the fact that defense outlays are often under secrecy, and often excluded from freedom of information legislation, undermines transparency and creates an environment open to corruption.3

Among OECD member-State parties to the Convention, the United States, as the initiator of the Convention and with the most to gain from it, is unsurprisingly the most

1 McNamus, Jenny. “Builders and Arms Dealers Lead World Corruption Index.” Independent Business Weekly, February 2, 2010. 2 Gupta, Sanjeev, Luiz de Mello, Raju Sharan. "Corruption and Military Spending." European Journal of Political Economy, Vol. 17 (2001), p. 751-752.3 Ibid. p. 752-753.

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committed to and has implemented the Convention the most effectively. France has done quite well in this arena and the implementation of the Convention has its roots in domestic political considerations. The United Kingdom is certainly the laggard among state signatories and has seemed until recently to make every effort possible to undermine or weaken the Convention in its domestic sphere. Israel and Russia, as non-State members, would seem to have little interest in applying the Convention in a simple rational choice model. However, Israel has applied the Convention and Russia has begun the process which the OECD will subsequently review.

Development from American Domestic Law to the OECD:

The Foreign Corrupt Practices Act

According to Robert Leiken, America’s efforts in combating corruption can be partially traced to the “progressive movement” where a growing middle class feeling alienated by the old patrimonial order pushed for transparency in government.4 In other words, a class based interpretation of American anti-corruption and bribery efforts necessitates the need for an organized middle class with growing influence, a component lacking in many countries. The United States’ Foreign Corrupt Practices Act of 1977 (FCPA) grew out of such concerns as a response to scandals revealed by the Watergate investigations, including bribery of foreign officials by the Lockheed corporation in 1975 and 1976.5 A sub-Committee of the United States senate discovered in 1976 that the corporation had paid millions in bribes to friendly governments to assure sales of fighter aircraft. Sections 103 and 104 of the second provision expressly prohibited payment of bribes to foreign officials. Thus the domestic climate in the United States and the disgust over the Watergate scandals would lead the government to unilaterally enact legislation against corruption, a unilateral mover not in the baseline economic interest of the United States as far as exports are concerned.

Among others, the main goal of the legislation was to assure investor confidence and to assure free competition, two important aspects in a capitalist system. The drawback for the United States was that to unilaterally oblige its companies to abstain from bribery of foreign officials, a noble undertaking, distorted competition by putting American firms at a disadvantage vis-à-vis foreign firms who had not adopted the same type of legislation. This negative effect of FCPA on American defense firms was perhaps lessened by the massive American military budget of the Cold War where domestic firms were assured adequate spending on their materials by the United States government. However, with the Cold War’s end, cuts in military budgets worldwide led defense firms to seek greater exports and the economies of scale which go with them. In such an environment the difficulty of American firms to bribe foreign officials, while other arms-exporting states had no legislation against the practice, put them in a disadvantaged position.

4 Leiken, Robert S. "Controlling the Global Corruption Epidemic." Foreign Policy, No. 105 (Winter, 1996-1997), p. 66.5 Carson, Thomas L. "Bribery, Extortion, and '"The Foreign Corrupt Practices Act."' Philosophy and Public Affairs, Vol. 14, No. 1 (Winter, 1985), pp. 67.

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FCPA: an American Disadvantage

For American firms the FCPA distorted competition for American firms due to the potential criminal penalties on corporate officers who paid bribes and also through indirect costs by paying ‘commissions’ to third-party intermediaries.6 In other words, American firms were faced with three choices: to remain at a sizable disadvantage by not paying bribes; to pay bribes and risk financial punishment; or to incur significant costs, while remaining exposed to some risks of sanctions, through the use of third-party ‘agents.’ The FCPA, while rather restrictive on the activities of American firms, does allow some payments to foreign officials. ‘Facilitating payments,’ those intended to pay a foreign official for what he is intended to do, and ‘reasonable expenses,’ waivers or payment for travel and accommodation for example, are allowed under the FCPA.7 Indeed, these allowances are often pointed out by foreign firms as ways of legitimizing, hiding or creating American forms of corruption. However, the fact remains that these payments are monitored and may be found unacceptable under American legislation while in many countries they are simply a part of business as usual.

The Clinton Years and the OECD Project

In the 1990s, during the Clinton administration in the United States, industrial lobbies pushed for legislation that would effectively put the same constraints faced domestically by American firms at an international level. This followed a 1999 report alleging that between 1994 and 1998, 239 international contracts totaling more than $108 billion bribes were used; around half of the contracts involved military procurement.8 This push by industrial lobbies came in the wake of the ‘Al Yamamah’ scandal implicating BAE Systems, the government of the United Kingdom and Saudi Arabian officials in corrupt practices surrounding the sale of fighter aircraft in exchange for oil. The work of Paul Beck et al. has shown that despite FCPA regulatory costs American firms maintained market dominance in Latin American countries due to regional dominance and geographic proximity but lost large market-shares in the Middle East, among other regions.9 Indeed, lost opportunities for American arms exports to the wealthy, oil reach Middle Eastern states led to questioning of the viability and logic of unilateral American anti-corruption legislation.

Effective lobbying would lead the Americans to push for the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 1997 (Convention of 1997) within the Organization for Economic Cooperation and Development 6 Beck, Paul J., Michael W. Maher, Adrian E. Tschoegl. "The Impact of the Foreign Corrupt Practices Act on US Exports." Managerial and Decision Economics, Vol. 12, No. 4 (Aug., 1991), p. 296.7 Dugan, Christopher F. and Vladimir Lechtman. "The FCPA in Russia and Other Former Communist Countries." The American Journal of International Law, Vol. 91, No. 2 (Apr., 1997), p. 380/8 Simpson, Glenn R. “Bribes Influenced the Outcome of Many Foreign Deals, U.S. Contends.” Dow Jones Business News, February 23, 1999.9 Beck, Paul J., Michael W. Maher, Adrian E. Tschoegl. "The Impact of the Foreign Corrupt Practices Act on US Exports." Managerial and Decision Economics, Vol. 12, No. 4 (Aug., 1991), pp. 297-301.

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(OECD). Previous efforts by the first Bush administration in this field were unsuccessful as only American business interests were presented as rational for a convention. Clinton, however, would play the role of an ‘aggregator’ by creating a coalition of American business interests and also presenting a role for Transparency International.10 This effectively brought both rational choice interests of capitalist enterprises and normative values of civil society. In other words, it is possible to be both an interest based actor and a value activist at the same time when values and interests are aligned.11 The interaction of the values and interests, through the interaction states, may be modified or reinforced. In this case, the Clinton was able to respond to business interests and while also appealing to the near universal value or norm that bribery and corruption are wrong.

The Convention took the form of a treaty whereby all OECD states signatories would agree to implement domestic laws defining bribery, criminalizing bribery of foreign officials, creating the measures for control and outlining sanctions in the case of violations. Article 1 of the Convention expressly defines the offence of bribing foreign officials and requires State parties to enact domestic legislation criminalizing bribery while Article 5 states that required enforcement of anti-bribery legislation must not be influenced by consideration of economic or foreign policy interests.12 When an interest leads to the creation of a law, that interest changes values through its legislated status but also changes interests as non-adherence may be costly.

The United Nations and the Fight against Corruption

A similar initiative has been undertaken within the United Nations. While wider in scope than the OECD Convention, the United Nations Convention against Corruption (UNCAC) lacks concrete means to substantially address the issue of corruption. This is unsurprising given the importance the United Nations, as a forum for international dialogue, places on sovereignty and the creation of norms.13 Much of the success of the OECD Convention is due to the efforts of civil society, most notably the progress reports of Transparency International, placing an independent, external form of leverage on governments. The UNCAC advises states to undertake self-reviews or reviews by “partners” thus truly independent monitoring and review cannot be assured. Moreover, while the OECD Convention which obliges State members to undertake a review process, the United Nations Office on Drugs and Crime’s Global Program against Corruption is intended to help states voluntary satisfy the provisions on the UNCAC.

10 Abbott, Kenneth W. and Duncan Snidal. "Values and Interests: International Legalization in the Fight against Corruption." The Journal of Legal Studies, Vol. 31, No. 1, Part 2: Rational Choice and International Law (Jan., 2002), p. S15411 Abbott, Kenneth W. and Duncan Snidal. "Values and Interests: International Legalization in the Fight against Corruption." The Journal of Legal Studies, Vol. 31, No. 1, Part 2: Rational Choice and International Law (Jan., 2002), pp. S155-156.12 Organization for Economic Cooperation and Development. Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions. 10 April 1998. DAFFE/IME/BR(97)20.13 See : Argandoña, Antonio. “The United Nations Convention Against Corruption and its Impact on International Companies.” IESE Business School (2006).

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In other words, while the OECD Convention obliges members to undertake reviews of their actions in regards to foreign bribery the UNCAC is better seen as an attempt to create norms in international society. The UNCAC aims to create norms which establish standards or conduct which delegitimize and stigmatize corrupt practices by pointing out that such practices are wrong.14 The vast majority of State members of the United Nations are party to the treaty. It is also assumed that countries which are more integrated into international society are more influenced by international norms of behavior.15 This being the case, while so many corrupt countries and countries who are isolated internationally are parties to the treaty, it remains to be seen whether their behavior will actually be influenced or whether the UNCAC will serve as a vehicle to greater international legitimacy for regimes that have no intention of changing their practices.

Implementation and Application of the Convention:

The United States: Continuity

In order to implement the Convention’s requirements in the United States, the FCPA was amended on October 21, 1998. The amendments entered into force on November 10, 1998 kept the same structure of the 1977 FCPA but extends it to include:

any person who engages in any act while in the territory of the U.S. and to any U.S. national and company engaged in an act outside the U.S. in furtherance of a proscribed purpose; adds “securing any improper advantage” to the list of improper purposes for payments to foreign officials; expands the term “a foreign official” to include any person acting for or on behalf of “public international organisation”; and allows the U.S. Attorney General to seek injunctive relief against foreign citizens or residents and entities other than “issuers” or “domestic concerns” that have engaged in or are about to engage in a violation of the FCPA.16

This amendment therefore extended the reach of the FCPA to foreign entities operating within the United States as well as American persons operating outside the country.

The United States, along with Germany, Norway and Switzerland, has reached the ‘active enforcement’ level, meaning that with its share of at least two percent of world exports it has at least ten major cases in process, of which at least three initiated in the last three years, and at least three have been concluded with substantial sanctions.17 In fact, in 2009, the United States had 120 prosecutions/cases along with 110 investigations. From the beginning of Transparency International’s “Progress Reports” in 2005, the United States has had at least 50 prosecutions/cases, 55 investigations and had satisfactory performance in all evaluation criteria,18 in addition to independent, centralized agencies for OECD Convention application. 14 Sandholtz, Wayne and Mark M. Gray. "International Integration and National Corruption." International Organization, Vol. 57, No. 4 (Autumn, 2003), p. 764.15 Ibid., p. 762.16 Organization for Economic Cooperation and Development. Phase I Country Report. “United States: Review of Implementation of the Convention and 1997 Recommendation.” October 2002. Available: http://www.oecd.org/document/24/0,3343,en_2649_34859_1933144_1_1_1_1,00.html17 Transparency International. “Progress Report 2009: OECD Anti-Bribery Convention.” pp. 7-8.18 Evaluation criteria as identified by Transparency International : Number of Prosecutions/Cases, Number of Investigations, level of enforcement centralization, sufficient resources, presence of complaint procedures, whistleblower protection for the public and private spheres, public awareness programs, accounting and auditing

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France: la Bonne Élève

Previous to France’s ratification of the Convention on July 31, 2000 and its entry into force on September 29, 2000, anti-bribery legislation in the country did not cover the bribery of foreign officials involved in commercial transactions. Act No. 2000-595 of 30 June 2000 amended the criminal code and procedure to make bribery of foreign officials a criminal offence.19 Territorial jurisdiction in the amended criminal code includes metropolitan France as well as all overseas territories and also extended territoriality so that “French criminal law shall be applicable to offences committed in whole abroad if they are connected with, or inseparable from, offences committed in France.”20

As of 2009 France is considered to have a level of “moderate enforcement” by Transparency International assumedly due to the fact that of the five prosecutions out of seventeen cases four were dismissed. With the exceptions of protection for “whistleblowers” in the public sphere and level of access to enforcement information, France currently enjoys an overall satisfactory rating from Transparency International. In regards to “whistleblowers,” legal protection in the private sector reached a satisfactory level in 2008 yet legal protections for civil servants, while in place, is of uncertain effectiveness and possibility of implementation.21

The United Kingdom: the Laggard

The United Kingdom is undoubtedly the country of most concern for proponents of the OECD Convention. Convention ratification took place on December 14, 1998 and parliamentary review of domestic legislation concluded that the Prevention of Corruption Act of 1906 (Act of 1906) was already sufficient enough to implement the provisions of the Convention. In December 1998, Brian Wilson, Britain’s trade minister, would even state that “Whilst the UK's existing anti-corruption legislation is sufficient to meet the obligations arising from the Convention, an independent review of that legislation is currently being undertaken by the Home Office.” 22 Thus an arguably outdated law was considered sufficient, as would a review of the said law undertaken internally.

The Act of 1906 does not clearly define the crime of bribing foreign officials and allows the Attorney-General the power to withhold consent for prosecution of the offenses.23

requirements, corporate compliance procedures, statutory and legal inadequacies, and public access to enforcement information.19 Organization for Economic Cooperation and Development. Phase I Country Report. “France: Review of Implementation of the Convention and 1997 Recommendation.” January 2004. Available: http://www.oecd.org/document/24/0,3343,en_2649_34859_1933144_1_1_1_1,00.html20 Ibid.21 Transparency International. “Progress Report 2008: OECD Anti-Bribery Convention.” pp. 19-20.22 “Brian Wilson Welcomes UK Ratification of OECD Bribery Convention.” COI’s Hermes – Government Press Release. December 11, 1998.23 Organization for Economic Cooperation and Development. Phase I Country Report. “The United Kingdom: Review of Implementation of the Convention and 1997 Recommendation.” March 2005. Available:

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In other words, the Act of 1906 lacks proper terminology to pursue violators and is subject to political interference. Exemplary of this failure is the fact that 2009 was the only year to witness any cases and in that year only four were brought before the court.

Aside from the United Kingdom’s failure, or refusal, to implement proper legislation to apply the Convention, Transparency International identifies serious problems in the country’s enforcement organization. In 2005, it was discovered that most cases of foreign bribery were to be investigated by local police forces that lack the resources and international experience required for such investigations.24 The United Kingdom’s Serious Fraud Office (SFO) is the body intended to investigate complex fraud and corruption cases and is more competent to investigate foreign bribery than local police forces. In 2007 the Overseas Anti-Corruption Unit (OACU) was created to support the SFO. A welcome development, however the OACU is understaffed and underfunded.25 Transparency International has further raised concerns that the SFO is prone to political pressure and cannot be considered independent.26 Such concerns came following the announcement by the SFO that investigations into the ‘Al Yamamah’ case would be terminated after “representations that [were] made both to the Attorney General and the Director of the SFO concerning the need to safeguard national and international security.”27 While the SFO maintains that the decision was taken by its Director, the potential for political interference is undeniable. Most importantly, terminating the investigation based on reasons of “national and international security” is debatable. The more likely reason is the hostility of the Saudi government to the investigation, in which case the SFO’s decision represents a blatant violation of Article 5 of the Convention.

At the current time the British Parliament is in the process of passing a bribery bill which has been welcomed by the OECD as appropriate to implement the provisions of the Convention. This being said, the fact that legislation is still being debated 12 years after appropriate measures should have been implemented is reason for concern. When amendments to the Act of 1906 were declared insufficient by the OECD working group, a bribery bill was drafted in March 2003. A Joint Committee of the House of Commons and House of Lords criticized the format of the bill and its continued use of the “agent/principal” construct28, which allows individuals to accept bribes if their employers permit it.29 The government considered some of the Committee’s recommendations but refused to abandon the agent/principal construct and no revised bill would be produced.30 From 2005 until 2009 revised bills were effectively stalled by repeated calls upon the British Law Commission for

http://www.oecd.org/document/24/0,3343,en_2649_34859_1933144_1_1_1_1,00.html24 Transparency International. “Progress Report 2005: OECD Anti-Bribery Convention.” pp. 10. 25 Transparency International. “Progress Report 2007: OECD Anti-Bribery Convention.” P. 14.26 Transparency International. “Progress Report 2009: OECD Anti-Bribery Convention.” P. 52.27 BBC News. “Saudi Defence Deal Probe Ditched.” December 15, 2006. Accessed: March 22, 2010. Available: http://news.bbc.co.uk/2/hi/business/6180945.stm28 Organization for Economic Cooperation and Development. “United Kingdom: Phase II bis Country Report.” October 20089. Available: http://www.oecd.org/document/24/0,3343,en_2649_34859_1933144_1_1_1_1,00.html29 Heinman, Benjamin W. and Fritz Heinman. “Arrested Development: The Fight Against International and Corporate Bribery.” The National Interest (Nov/Dec 2007), p. 82.30 See : Organization for Economic Cooperation and Development. “United Kingdom: Phase II bis Country Report.” October 2008. Available: http://www.oecd.org/document/24/0,3343,en_2649_34859_1933144_1_1_1_1,00.html p. 9-12.

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consultation papers, the first in December 2005 with a follow-up in March 2007 and a second consultation paper which ended in March 2008, seeking to provide consensus on the terms of a new draft bill. Following each consultation paper there followed a comment period which furthered delays for drafting a revised bill.31 Although the bill is now being reviewed in the House of Commons there is now concern that the Conservative party may cede to pressure of the Confederation of British Industry (CBI) to block the bill once again.32 This would be despite the fact that the bribery bill is a Law Commission bill and thus bi-partisan, however resending the bill would be in continuity with previous British approaches to avoiding the OECD Convention provisions.

Israel: An Individual Initiative?

Israel, a non-OECD country, has ratified the Convention and its application of the document is now under scrutiny. This case also presents an interesting step as non-OECD countries have been increasing their exports without the constraints of the Convention. Although not yet an OECD country, Israel wishes to join the organization by May 2010, thus ratifying the Convention is a necessary step, outlined in the “roadmap” towards ascension, as it must put in place the legal substantive instruments of the OECD before full accession to the organization.33 At the same time Israel has been plagued by corruption scandals and accusations in its defense exports sector up to the point where Europe and American defense firms have threatened to derail its bid to join the OECD.

On July 14, 2008 Israel amended its 1977 Penal Law, to include the offence of bribery of foreign officials, which entered into force one week later. The OECD concluded during Phase 1 evaluations that the amended Article 291A of the Israeli Penal Law 1977 is largely capable of conforming to the provisions of the Convention but raised some issues concerning bribes given to third parties, a relatively low level of sanctions, the application of Article 291 A in the occupied Palestinian territories, and ambiguity of the role of the Attorney General in closing cases which may conflict with Article 5 of the Convention.34 Israel’s Phase 2 report, evaluating its current implementation of the Convention, was available in December 2009 following Israel’s ratification of the Convention in March of that year. Among OECD recommendations following the Phase 2 evaluation were the need to raise awareness in the public sector, improve “whistleblower” protection, make aware that payments to foreign officials are not tax-deductable, provide adequate resources for investigative bodies, and in the clause regarding jurisdiction in ‘foreign states,’ include the phrase “a political entity that is not a state, including the Palestinian territory.”35 31 Ibid.32 Wiontour, Patrick.The “CBI and Tories Play Games with Bribery Bill.” The Guardian. March 17, 2010. Accessed: March 23, 2010. Available: http://www.guardian.co.uk/politics/wintour-and-watt/2010/mar/17/cbi33 OECD. “Roadmap for the Accession of Israel to the OECD Convention.” 3 Dec. 2007. Available: http://www.olis.oecd.org/olis/2007doc.nsf/LinkTo/NT00004872/$FILE/JT03237381.PDF34 Organization for Economic Cooperation and Development. Phase I Country Report. “Israel: Review of Implementation of the Convention and 1997 Recommendation.” March 19, 2009. Available: http://www.oecd.org/document/24/0,3343,en_2649_34859_1933144_1_1_1_1,00.html35 Organization for Economic Cooperation and Development. Phase II Country Report. “Israel: Review of Implementation of the Convention and 1997 Recommendation.” December 11, 2009. Available:

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Of particular interest in the Phase 2 report is the direct addressing of Israel’s state export credit and insurance agency, Israel Export Insurance Corp. Ltd. (ASHRA), and defense industry in the recommendations chapter.

5. Regarding officially supported export credits, the Working Group recommends that the Israel Export Insurance Corporate Ltd (Ashr’a): (i) continue to undertake training on the detection of bribery and how to deal with clients who use foreign agents; and (ii) consider requiring clients to incorporate anti-bribery clauses when engaging sub-contractors (Revised Recommendation I and VI(ii)).

6. Regarding detection within the defence industry, the Working Group recommends that Israel: (i) encourage the defence industry in Israel to develop strong anti-corruption measures and engage in international anti-corruption initiatives concerning the defence sector; (ii) ensure that, when providing licenses for exporting military equipment and dual-use goods, the Defense Export Controls Directorate of the Ministry of Defense considers whether applicants have been involved in bribery as well as the level of risk of corruption in relation to arms procurement in the destination country; and (iii) consider the temporary or permanent disqualification of enterprises convicted of bribing foreign public officials from applying for export licenses (Revised Recommendation I and VI(ii)).36

Given the history of accusations of corruption in Israel’s armaments industry and exports, the inclusion of these recommendations are a strong signal to the Israeli government that former practices will no longer be tolerated and subsequent actions subject to monitoring.

Russia: A Sign of Good Faith?

In May 2007 the OECD Ministerial Council adopted a resolution to begin discussions with Russia for OECD membership. This resolution was followed by a “roadmap” to accession which included requirements for the Working Group on Bribery to investigate Russia’s willingness to combat bribery of foreign officials. In February 2009 the country formally applied to become a full participant in the Convention which means the Working Group on Bribery will undertake Phase 1 and Phase 2 evaluations to determine legislative and practical implementation of Russia’s anti-corruption commitment.37 Moreover, while Russia’s anti-corruption legislation is seriously lacking, and while Russia ranks 147th out of 180 countries in Transparency International’s 2008 Corruption Perception Index, following his election Russian President Dimitry Medvedev made it clear that combating corruption was high on his list of priorities.38 While many experts consider corruption in Russia as so deeply entrenched that combating it may be near impossible, the fact remains that the government has at least demonstrated its intentions to begin to address the problem. It remains to be seen the results following the Working Group on Bribery’s reports. What does immediately come to the surface is the question of why Russia would decide to undertake efforts to legislate against corruption, a practice that is seemingly to its advantage to foster exports.

http://www.oecd.org/document/24/0,3343,en_2649_34859_1933144_1_1_1_1,00.html36 Ibid., p. 68.37 Organization for Economic Cooperation and Development. “Anti-corruption Activities in the Russian Federation.” Accessed: March 23, 2010. Available: http://www.oecd.org/document/3/0,3343,en_2649_34857_31770563_1_1_1_1,00.html38 Welu, Carol M. and Yevgenya Muchnik. “Corruption: Russia’s Economic Stumbling Block.” Business Week. August 27, 2009. Accessed: March 23, 2010. Available: http://www.businessweek.com/globalbiz/content/aug2009/gb20090827_771618.htm

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State Approaches and Interest:

The United States: An Obvious Case

As discussed previously, the United States interest in the OECD Convention stems from the fact that since 1977 it has de facto, and unilaterally, implemented anti-bribery legislation through the FCPA. In order to be on equal ground with competitors for export contracts the United States could not remain the sole country with restrictions on bribery. Finally, domestic lobbying of the Clinton administration by industrial groups led the United States to push for legislation at the international level in collaboration with value based non-governmental Transparency International. The push for the Convention, in the interests of businesses, was successful due to this combining of interests and norms.

France: Domestic Politics at Play

In the case of France, at the time of the 1997 Convention the government was in ‘cohabitation,’ a President from the right, Jacques Chirac, and a Prime Minister from the left, Lionel Jospin. In late January 2000, Madeline Albright, then American Secretary of State, issued a statement highly critical of France for having still not ratified the Convention.39 This was not the first public reproach of France from the Americans. In 1999, American officials expressed their approval that France had banned tax deductions for bribes, but lamented that the country was taking too long to ratify the treaty and pointed out that the ban on tax deductions would not enter force until ratification.40 These episodes were sources of embarrassment for a French government in the difficult position of explaining their seeming tolerance of corruption and bribery.

Reprimands for being weak on corruption were especially sensitive at this time for President Chirac. During the late 1990s and early 2000s Chirac was shrouded in controversy in relation to scandals over building projects during his time as Mayor of Paris to allegedly fund his Rassemblement pour la République (RPR) party and which involved large bribe payments.41 Around the same time, Chirac’s center-right party was in good company with the Socialists who had their own scandals including investigations into former Socialist Prime Minister Ronald Dumas allegedly taking bribes from a state owned oil company,42 and later allegations that Dominique Strauss-Kahn, one of the more popular members of the Socialist Party, likewise accepted bribes from a student insurance agency.43

39 « OCDE/Corruption – La France rejette les critiques d’Albright. » Reuters, February 1, 2000. 40 Simpson, Glenn R. “Bribes Influenced the Outcome of Many Foreign Deals, U.S. Contends.” Dow Jones Business News, February 23, 1999.41 Humi, Peter. “Chirac dogged by corruption scandal.” December 7, 2000. Accessed: March 24, 2010. Available: http://archives.cnn.com/2000/WORLD/europe/france/12/07/france.scandal/index.html42 Sancton, Thomas. “France Today.” Time, June 15, 1998. Accessed: March 24, 2010. Available: http://www.time.com/time/magazine/1998/int/980615/focus_on_france.france_t13.html

43 Schwarz, Peter. “France’s Minister of Finance Strauss-Kahn resigns.” World Socialist Web Site, November 5, 2010. Accessed: March 24, 2010. Available: http://www.wsws.org/articles/1999/nov1999/fran-n05.shtml

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This combination of domestic bribery scandals and public criticisms for being slow to address the phenomenon at the international level led both the French left and right to seek means of damage control. This was all the more important given the upcoming 2002 presidential elections which Chirac and Jospin, among others, would both contend. Jospin, seen as uncorrupted, would have no problem pushing for anti-corruption measures as Chirac could benefit from similar measures in attempts to fix his tarnished reputation. Combating corruption, along with decreasing unemployment, are referred to as “valence” politics by Donald E. Stokes, meaning that no candidate in any circumstance would present themselves as against.44 In this case, the Convention presented an opportunity for candidates to demonstrate their commitments to an issue of uncontested value to voters and would result in a push toward ratification of the Convention. Perhaps if the domestic political climate had been different temptations to follow the “English model” would have been more salient in France.

Thus, in the case of France, negative publicity creating disgust among the domestic electorate would push rational policy to make decision based on self-interested calculations leading to domestic implementation of the Convention provisions. This ‘bottom-up’ dynamic, from electors to politicians preparing for elections, would reach the international level in the form of OECD provisions become a part of French anti-foreign bribery law. In other words, the valence values among the French population created an interest among French politicians to address corruption and bribery. This interest transposed itself into law which confirms the normative element to French anti-bribery efforts.

The United Kingdom: Bottom-up and Inter-state Pressure

The United Kingdom’s reluctance to truly implement the Convention has its basis on practical economic ends. The Al Yamamah arms deal with Saudi Arabia was founded on a questionable basis and was to be followed by several follow-up agreements, the most recent in 2006. Interesting to note is the fact that a draft bribery bill was presented in 2003 but rejected due to Parliamentary opposition to the abandonment of the “agent/principal” structure. Law Commission draft bills, supposedly meeting bilateral parliamentary consensus, were subsequently sent back and today, in March 2010, we are still awaiting approval of a bill that should have been in place over a decade ago. Moreover, pressure from industrialist lobbies means that the bill risks once again being amended or rejected.

The stalling of the drafting process corresponds neatly with the conclusion of the Al Yamamah II deal with Saudi Arabia which was most likely conducted under similar practices as the first. Thus drawing out the time frame for the bill allowed the deal to go forward. Moreover, the insistence of keeping the “agent/principal” structure of Britain’s Act of 1906 meant that there could be no violation of bribing foreign officials in the Al-Yamamah case if the employer of the agent was aware of payments and not in disagreement. Given the specificities of this case, that those receiving bribes were members of the Saudi royal family, 44 Stokes, Donald E. “Valence Politics.” in Electoral Politics, Dennis Kavanagh (ed.), 1997, Oxford University Press, pp. 141-165.

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this clause along with the very likely approval of the Saudi King would leave no grounds for legal jurisdiction over British persons.

The cancellation of the SFOs investigation based on “national and international security” represents not only a violation of Article 5 of the Convention but also Saudi Arabian pressure and threats to violate agreements on intelligence sharing between the United Kingdom and Saudi Arabia. Inter-state pressure from Saudi Arabia, combined with ‘bottom-up’ pressure from non-state actors the CBI, an industrial lobby, and BAE Systems, Britain’s prime defense contractor, has inclined the government of the United Kingdom toward a weak response to corruption and bribery: from putting forth that legislation from 1906, with obviously flawed clauses, was sufficient to stalling necessary legislation. In other words, the government of the United Kingdom’s ability to put its international obligations into practice was compromised by forces exterior to it.

Recently, on March 1, 2010, BAE Systems PLC plead guilty to conspiracy and was fined $400 million for intentionally not complying with legal prohibitions on foreign bribery and taking steps to conceal payments to foreign officials from the United States.45 In addition to the fine BAE Systems will be subject to a 36 month probationary term, must install an independent corporate monitor and implement an ethics compliance program.46 With such a substantial fine and the imposition of a corporate monitor advantages of foreign bribery may have their days numbered. As the United Kingdom’s prime contractor BAE Systems is now subject to greater restrictions as new monitoring mechanisms are in place. Therefore, the time is right for the United Kingdom to end their embarrassment on the international stage and finally pass a bribery bill with substantial provisions in accordance with its obligations as a State party to the OECD Convention. British reluctance to apply the Convention can be thought of as the rational pursuit of commercial interests in the absence of norm based appeals to combat foreign bribery; the interests of BAE Systems and Saudi officials were more successful than efforts of value actors.

Israel: Dependency and Opportunities

In 2000, Israel’s defense budget reached its all-time low. At the same time, fixed-component costs such as R&D and operational expenditures have increased leaving less available resources for procurement. Thus increasing defense aid packages to Israel from the United States have eased the strain on the Israeli budget.47 Moreover, in 2007, the Israel-United States Memorandum of Understanding on the American defense aid package to Israel increased transfers for purchases of American military equipment to the country by 25% - from $24 billion to $30 billion – from the previous decade. In the agreement Israel may also

45 Yost, Pete. “Defense company BAE Systems enters guilty plea.” Associated Press, March 1, 2010. Accessed: March 23, 2010. Available: http://www.google.com/hostednews/ap/article/ALeqM5g3QwWYx1uRKTNSFCEecsLVkgqyIgD9E6558G146 Matthews, Christopher M. “No Surprises as BAE pleads guilty to defrauding the U.S.” Main Justice, March 1, 2010. Accessed: March 23, 2010. Available: http://www.mainjustice.com/2010/03/01/no-surprises-as-bae-pleads-guilty-to-defrauding-the-u-s/47 Accessed: 15 March 2010. Available: http://www.globalsecurity.org/military/world/israel/mod.htm

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convert 26.3% of the package into shekels thus allowing procurement from Israeli contractors.48 This situation effectively means that the United States is supporting the budget of the Israeli Ministry of Defense and at the same time subsidizing American firms as the majority of the aid package must be spent on American-origin material. Such a situation is met with criticism from groups within the United States but also from Israeli Industrialists who desire that a greater portion of the aid packages can be spent on domestic procurement.

The same year that the American aid package was dramatically increased Israel also created the Defense Export Controls Directorate (DECD) as a licensing authority for export of defense equipment and technology. The DECD lists exporters on a registry maintained by the Israeli Ministry of Defense (MoD). Given the Israeli MoD financial dependency vis-à-vis Washington, its oversight of the DECD and exports gives the United States great influence. The OECD’s Phase 2 evaluation of Israel’s application of the Convention states that while DECD has taken no steps to raise awareness of the offence of foreign bribery the Israeli MoD has acknowledged that such steps should be taken.49

On a purely political level, the OECD presents Israel with the opportunity to take part in an international forum where its economic practices will be the objects of review and questioning, rather than its internal affairs and regional conflicts as is the case in many other international forums.50 In addition, the information provided by Israel to the OECD includes all Israeli citizens, including those who currently reside as settlers in the Palestinian territories. This being the case, accession to OECD membership based on such statistics is a means to legitimize an occupation which is the topic of much debate and condemnation.51

With the United States supporting the Israeli defense budget for material expenditures, a greater amount of money in Israeli may be earmarked for R&D spending and improvement of its military industrial complex and defense materials. Full membership in the OECD creates economic opportunities and the Convention will legitimize an Israeli defense sector, often accused of corruption, and present avenues for transparent exportation of higher quality materials. In addition, given the United States support for the Convention and Israel’s dependence on American aid, Israel would find difficulties in carrying on corrupt practices. The risk of cuts in American aid, combined with perhaps greater shares of aid packages earmarked for Israeli firms in the future should Israel apply the Convention, are effective push and pull factors for Israeli compliance with the Convention.

48 Ravid, Barak. “Israel, U.S. formally sign new defense aid agreement.” Haaretz. 16 August 2007. Available: http://www.haaretz.com/hasen/spages/894255.html49 OECD Directorate for Financial and Enterprise Affairs. Israel: Phase 2 REPORT ON THE APPLICATION OF THE CONVENTION ON COMBATING BRIBERY OF FOREIGN PUBLIC OFFICIALS IN INTERNATIONAL BUSINESS TRANSACTIONS AND THE 1997 RECOMMENDATION ON COMBATING BRIBERY IN INTERNATIONAL BUSINESS TRANSACTIONS. 11 December 200950 Chalamish, Efraim. "Comment / Can Israel have its OECD cake and eat it too?" Haaretz. 08/03/2010. Accessed: 11/03/10. Accessed: http://www.haaretz.com/hasen/pages/ShArtVty.jhtml?sw=OECD&itemNo=115491851 Cook, Johnathan. "Israel given one year to tell truth about settlers." The National. March 7, 2010. Accessed: 11/03/10. Available: http://www.thenational.ae/apps/pbcs.dll/article?AID=/20100308/FOREIGN/703079958/1135/commentary

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The American-Israeli relationship is often explained in structural-realist terms, most notably the work of Stephen Walt, as “bandwagoning.”52 Essentially, that Israel seeks to gain ground in international politics through an alliance with the world superpower, the United States. Generally, one would expect that Israel, as the weaker state, to be in a position of dependency vis-à-vis the United States, however past Israeli policies have gone directly against the wishes of Washington without calling the “special relationship” into question.53 Regardless of these instances, in terms of its military budget, Israel is in a position where its defense budget cannot survive without American aid packages. Although it is unlikely that this aid would be cut, even in the event of an Israeli refusal to implement the Convention, Israel is under American pressure to conform to the OECD program in the hopes of perhaps being allowed to spend a greater share of American aid on domestic procurement but also to gain legitimacy for its defense export sector at the international level.

Russia: the Construction of Identities and Interests

Although Russia has not officially begun to undertake OECD reviews in regards to its commitment to combat foreign bribery as one of the main international arms exporters not required to implement the Convention due to its status as a non-OECD member, we must ask why the country would express interest in a Convention that would a priori undercut its advantage in offering bribes to foreign officials.

Russia’s transition toward privatization in the 1990s was undertaken in a haphazard manner allowing powerful individuals, the “oligarchs,” to amass massive private holdings and fortunes. The oligarchs were largely outside of state control, paid little taxes and were able to use their wealth to manipulate politics and representatives of the Duma in their favor. Seeking to centralize power in the Kremlin, Vladimir Putin targeted oligarchs critical of him or who attempted to influence politics in Russia, most notably Mikhail Khodorkovsky, and became more popular among a general public resentful of the oligarchs.54 In addition, during his presidency, Vladimir Putin made calls to address corruption in every State of the Nation speech, yet did nothing concrete in this regard.55

In Putin’s attempts to eliminate opposition, discourses on corruption fit into the thematic allowing him to garnish popular support and put the oligarchs on notice. Bernard Black and Anna Tarassova explain that much of Russia’s economic woes of today stem from the fact that corruption and bribery were out of control during the transition process from public to private control resulting in gross concentrations of wealth, inequality and unemployment and in turn gave the oligarchs the means to further corrupt the government.56

52 Walt, Stephen M. "Alliance Formation and the Balance of World Power." International Security, Vol. 9, No. 4 (Spring, 1985), pp. 7-8.53 For a recent case, see : “Where did all the love go?” The Economist, March 20-26, 2010, p. 45.54 Goldman, Marshall I. "Putin and the Oligarchs." Foreign Affairs, Vol. 83, No. 6 (2004), pp. 33-44.55 Aris, Ben. “What’s Really Wrong with Russia.” Business News Europe, March 24, 2010. Available: http://businessneweurope.eu/story2018/Whats_really_wrong_with_Russia56 Black, Bernard S. and Anna S. Tarrassova. “Institutional Reform in Transition: A Case Study of Russia.” Supreme Court Economic Review, Vol. 10 (2003), pp. 211-278.

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In fact, despite the 2008-2009 financial crisis a Russian Interior Ministry report found that the average bribes in the country increased nearly 300%.57 While Putin perhaps never intended to actually address corruption, President Dimitry Medvedev has made combating corruption and bribery priorities in setting up anti-corruption units within the Ministry of the Interior and the General Prosecutors Office. Should they prove effective, these bodies may later serve as monitoring and investigative instruments of foreign bribery within the framework of the OECD Convention. Already, in November 2007, Russian diplomat Alexandre Yakovenko declared Russia’s intentions of adhering domestic laws to the international standards of the Convention.58

In the realm of arms exports, India has begun to overshadow China as the principal importer of Russian arms. While India has previously been considered highly corrupt due to willingness of its firms to pay bribes, enormous progress has been made in recent years. According to Transparency International’s “Bribe Payer’s Index,” India’s score improved from 4.62 to 6.8, while Russia had a less substantial progression from 5.16 to 5.9.59 From this we might deduce that an anti-corruption effort in India, Russia’s primary arms trade partner, is a factor pushing Russia towards the Convention. Moreover, the world’s principal arms exporters with the exception of China are State parties to the Convention and, at the same time, China has seen its own arms exports numbers shrinking while it continues to import from Russia.

A $1 billion Russian arms deals with Iran concluded in 2007 for the delivery of S-300 surface to air missile systems was stalled following the visits of Shimon Peres and Benjamin Netenyahou to Moscow. Russia has still not completed the delivery, Israel promised to stop military cooperation with Georgia and a $34.24 million deal was signed for Israel to provide Russia with aerial drones.60 At the current time, Russia is also engaged in negotiations with France for the sale of Mistral warships. Given France’s status as an arms exporter and State member of the Convention, one must assume that pressure to implement anti-bribery legislation in Russia will play a role in negotiations.

Over recent months, Medvedev has made many shows of goodwill including firing Moscow’s police chief following instances of police brutality,61 placing a moratorium on the death penalty in 2009,62 and negotiations for an arms control treaty with the United States.63 The fact that Russian-American negotiations on nuclear disarmament has taken place and

57 “Russian briber nearly tripled despite economic crisis – official report.” Rianovsti, March 25, 2010. Accessed: March 25, 2010. Available: http://en.rian.ru/russia/20100325/158308541.html58 « OSCE : la Russie souhaite adhérer à la Convention anti-corruption . » Rianovsti, November 21, 2007. Accessed : March 25, 2010. Available : http://fr.rian.ru/russia/20071121/88999529.html59 Transparency International. Available : http://www.transparency.org/policy_research/surveys_indices/bpi/bpi_2006 Note : 10 is the highest score60 Jégo, Marie. "Moscou demeure ambivalent vis-à-vis de l'Iran: pour ménager son partenaire, la Russie hésite à renforcer les sanctions des Nations unies." Le Monde: Bilan Géostrategique 2010. p. 3361 "Cops for hire." The Economist, March 20-26, 2010, pp. 30-31.62 “Russia enshrines ban on death penalty.” BBC News, November 19, 2009, Accessed: March 25, 2009. Available: http://news.bbc.co.uk/2/hi/8367831.stm63 Fedyashin, Andrei. “Obama, Medvedev poised to sign arms treaty in Prague.” Rianovsti, March 25, 2010. Accessed: March 25, 2010. Available: http://en.rian.ru/analysis/20100325/158309215.html

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nearly reached conclusion shows that the United States has adopted a more respective stance toward Russia allowing it to adopt more responsible and cooperative international posture.64

Paradoxically, Russia may have economic incentives in the military arena to implement the Convention in order to facilitate procurement from State members and also to continue its exportation with India, a country making significant progress in anti-corruption measures. Moreover, domestically battling corruption and bribery in Russia is of priority to keep the influence and power of the oligarch class in check, aims which can only be enhanced by extending efforts to the international level. In constructivist terms, Russia’s domestic and international interests have reached a point where anti-corruption and anti-bribery measures serve an ever-growing importance. Therefore striving toward an identity of transparency serves its interests which will, in turn, reinforce this positive image. Russia’s intentions to implement the Convention, nuclear disarmament talks and addressing domestic social grievances are witness to an ever-emerging value-based identity which is fostered by the personality and approach of President Medvedev and aligns with the country’s interests.

In summary, the Convention presents an interesting study of the interplay between interest based actors, operating in a rational choice framework, and normative activists whose decisions are based, or at least presented to be based, on values. Among arms exporting states we see differing approaches to the Convention, from the American initiation of legislation at the OECD level, to the United Kingdom’s dismal record, to non-OECD states who either calculate their interests in implementing the Convention or who see no other option. In the end, it becomes evident that successful application of the Convention takes place in situations where a state’s interests converge with valence norms against foreign bribery. International law confirms values which modify interests; changing interests in the face of legislation reconfirm norms and values.

64 Dubien, Arnaud. « Etats-unis – Russie : un partenariat est-il possible ? » La Revue International et Stratégique, Vol. 76 (Hiver 2009/2010), pp. 195-196.