Global anti-corruption cooperation is set to rise

Analysis

Since the Siemens case in 2008, the pace and size of prosecutions has gathered momentum. The United States has led global efforts to curb corruption. Its Foreign Corruption Practices Act (FCPA) has been the basis for many of the most high-profile cases.

The most visible case in recent months is the FIFA investigation. The case is the first instance of cooperation between the US Department of Justice and the Swiss law enforcement authorities regarding a corruption case (see INTERNATIONAL: Money laundering policy rethink ahead - July 16, 2015).

Global anti-corruption trend

The rising anti-corruption trend is partly driven by concerns over terrorism and the drug trade, lost tax revenues, and the potential for unrest over social inequality (see INTERNATIONAL: Inequality norms will shape business - January 6, 2016). Sometimes the drivers are narrower -- anti-corruption campaigns have been used to target political enemies.

Whatever the motives, since the early 2000s several governments have instigated foreign bribery or money laundering cases themselves.

United Kingdom

One example is the United Kingdom. Its 2010 Bribery Act created an innovative corporate offense of failure to prevent bribery from persons associated with a company on its behalf.

The United Kingdom also uses Deferred Prosecution Agreements (DPA) to settle corporate fraud cases. In November 2015, a UK court approved the first DPA in a bribery case against Tanzanian ICBC Standard Bank. This means that the Serious Fraud Office (SFO) is likely to be able to bring many new cases to trial.

China

A surprising new entrant into global anti-corruption enforcement is China (see CHINA: Party's grip constrains anti-corruption drive - June 25, 2014), which has become more assertive vis-a-vis foreign businesses.

Its landmark case against UK pharmaceutical major GSK in 2014 was a unilateral initiative (see CHINA: Transformation drive squeezes foreign firms - September 4, 2013), but GSK now faces investigation under the FCPA and the UK Bribery Act.

Beijing takes a tough approach to Chinese firms too, but foreign firms make tempting targets because they lack political patrons, because bad press for foreign firms benefits domestic brands, and because the spectacle of Chinese regulators standing up to 'predatory' foreign businesses is popular with the public.

China's anti-corruption campaign is spilling over into other countries with the Operation Foxhunt (2014) and Operation Skynet (2015) campaigns to track down and repatriate corrupt officials who have fled overseas. Beijing claims these have already handled cases amounting to tens of billions of dollars and brought hundreds of suspects back to China.

Brazil

There are signs of increased activity from other emerging markets, which have traditionally been prevented from successfully prosecuting corruption cases because of weak rule of law or lack of political will.

In Brazil, the Petrobras corruption investigations show that the judiciary has been able to enforce the law without undue political interference and despite involving important individuals. This could have major repercussions on how this emerging market deals with corruption cases in the future both inside the country and outside (see BRAZIL: Petrobras undermines investment efforts - July 27, 2015).

Multipolar enforcement

These cases could be considered examples of multipolar enforcement -- there is a trend of rising enforcement of anti-corruption rules globally, but the initiative and drive is still coming from individual countries.

Towards multilateral cooperation

As multipolar anti-corruption efforts rise, governments are also increasing their efforts to cooperate with each other: the trend is from multipolar enforcement towards multilateralism.

International legal framework

The unifying legal instrument in international law is the UN Convention Against Corruption (UNCAC) which has been signed and ratified by most countries.

Another influential, and many consider, more effective, piece of legislation is the OECD's Anti-Bribery Convention which came into force in 1999. Ratified by 41 states (34 OECD countries and seven non-OECD countries), it focuses on regulating foreign bribery.

Since these came into force in 2005 and 1999 respectively, countries have adopted their principal tenets into their own legislation. For all the differences in approaches to corruption, at least on paper, the vast majority of the world's governments are now on the same page.

The two pieces of legislation have provided common definitions of corruption and foreign bribery, and growing international consensus can be credited with the acceleration in intergovernmental cooperation in investigating corruption cases, exposing criminals and bringing them to justice.

There are several other international initiatives which are beginning to have impact on corrupt behaviour:

• the Financial Action Task Force (FATF), which meets regularly to discuss how to prevent money laundering;
• the Stolen Asset Recovery Initiative (StAR), which supports international efforts to end safe havens for corrupt funds and to facilitate the return of stolen assets;
• the Base Erosion and Profit Shifting (BEPS) system, which tries to find solutions to aggressive tax avoidance;
• the Global Forum on Transparency and Exchange of Information for Tax Purposes, which ensures that common standards of transparency and exchange of information for tax purposes are in place around the world; and
• the Open Governance Partnership (OGP), a government/civil society alliance which encourages better governance and more transparency in government.

Many of these initiatives have been around for some time, but have only recently become active. For example, the FCPA was first introduced in the 1970s, but only became active in the last ten years along with the introduction of new initiatives, such as the BEPS (2013), OGP (2011) and the Global Forum (2009). Others have updated their rules and mission giving them a more active role.

A new piece of international legislation, which is already having an impact on companies especially in the financial services industry, is the EU's Fourth Anti-Money Laundering Directive which came into force in 2015. The directive will put increased pressure on companies to conduct due diligence, adhere to new beneficial ownership reporting requirements, and record keeping requirements.

As a result, banks are boosting their compliance systems, recruiting compliance and "Know Your Customer" (KYC) personnel, instituting complex systems to identify the beneficial owners of assets and accounts (see EUROPE/US: HSBC move may mean tougher European policy - April 8, 2015).

G20 role

The G20 has become an influential forum for greater cooperation.

In recent years the group has stipulated 'high-level principles' on a number of issues related to the anti-corruption agenda, including on mutual legal assistance, beneficial ownership, public procurement and private sector integrity. Although of a declarative nature, these point the way to greater cooperation in the years to come.

Furthermore, the G20 process has breathed new life into many international cooperation initiatives, such as the FATF and StAR -- both have observer status at the G20 Anti-Corruption Working Group and have been promoted by G20 decisions over the last five years.

Other anti-corruption leaders?

Leadership by a small number of countries other than the United States could potentially encourage further international cooperation.

The UK government has recently adopted an international leadership role in the area of anti-corruption. It issued an Anti-Corruption Plan at the end of 2014 to promote "joined-up government" domestically.

Meanwhile, in 2015 UK Prime Minister David Cameron announced that an intergovernmental summit will be held on May 12, 2016 in London to strengthen global anti-corruption efforts (see UNITED KINGDOM: Markets review presages global push - June 15, 2015).

A global anti-corruption agency?

There have been calls for a voluntary supranational anti-corruption agency which would have jurisdiction over and above that of the national legislatures, somewhat like the International Court of Human Rights.

However, given the time scales involved in getting governments to cooperate on far simpler corruption-related matters, an International Anti-Corruption Court is a very long-term prospect.

Nevertheless, the appearance of some kind of permanent international institutions dedicated to specific issues such as aggressive tax avoidance or self-reporting are needed and their appearance in time cannot be excluded.

Obstacles remain

There are many obstacles to full international anti-corruption cooperation. Chief among them are different legal systems, understandings of corruption, business and cultural traditions.

Rule of law and the independence of the judiciary and the press have a direct impact on the ability and will of countries to address corruption. It is difficult to see that this will change for the foreseeable future.

Many countries have signed up to the multilateral conventions and participate in the international institutions, but they do not enforce. The elites in power often have a vested interest in paying lip service to the fight against corruption -- especially if corruption charges can be used against political adversaries -- but little incentive to address it.

At best they do not want to undermine the kleptocratic structures upon which their power is based; at worst they are personally financially benefiting from the corrupt activity.

Even in developed countries that have the benefit of the rule of law and independent judiciaries, there is a marked ambivalence in enforcement.

Until recently governments have turned a blind eye to safe havens, tax avoidance and evasion, and legal loopholes. Even in the post-2008 era of greater regulation, it is still hard to win cases.

For example, in the LIBOR scandal, where major banks in London were accused of fixing interest rates, only one person has been convicted so far. The financial industry has also pushed back against greater regulation, and the UK Financial Conduct Authority dropped its review of bank culture.

Legislation lags technology

The rapid, technology-driven globalisation of corrupt practices has also created challenges that the disparate regulatory environment is struggling to keep up with. For example, there are contradictions between the needs of the law enforcement authorities for information about banks' clients and the banks' obligations to respect client confidentiality.

Business impact

For multinational companies, this multipolar world of anti-corruption enforcement poses specific challenges.

If criminal activity is discovered, a company should voluntarily self-report in the country where the crime has taken place. However, if the crime has occurred in several jurisdictions, as is often the case, the company will be tempted to self-report in the country where there are the most favourable conditions, for example, greater leniency for companies that cooperate with investigations.

Wherever they choose to self-report, the international legal framework cannot determine how cooperative companies are treated in other jurisdictions.