Deputy High Commissioner Martin Reynolds's speech at C5's Forum on Anti-Corruption - Southern Africa
Transparency is a top priority for the British Government and corruption is so harmful to economic growth and undermines the social fabric of societies.
Transparency: the UK approach
- I would like to thank the organisers of this conference for inviting me to participate. It is a real honour. I am not a transparency expert. But I strongly believe this is a subject that is in everyone’s interest. And it is a top priority for the British Government – as shown through our G8 Presidency this year and through the adoption in 2011 of the UK Bribery Act. I will touch on both these in my speech to you today.
Corruption – a global problem
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Corruption is present in every society. At every stage of development. Some argue it is necessary to get things moving and is a part of everyday life.
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Corruption is most prevalent in countries where government is failing to provide the services it should. But the importance of tackling corruption, at all levels, cannot be overstated. It is corrosive. Like rust, rot and other decay, corruption, once set in it begins to spread. And, like rust, rot and other decay, it must be stopped before lasting and irreversible damage is done.
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From a social perspective, corruption undermines the rule of law and public trust in politicians, public servants and business leaders.
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From an economic perspective, corruption distorts competitive markets and leads to the misallocation of resources. Every year, corruption adds as much as 10 percent to the total cost of doing business globally. Up to 25 percent of the cost of procurement contracts in developing countries. And a shockingly high estimate of 5% of total global GDP.
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So tackling corruption makes economic and political sense. And it is an issue for all governments to front up on. What is the British Government doing about it?
The UK’s approach
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First, the global context. The United Kingdom has the Presidency of the G8 this year and hosted the G8 Summit in Lough Erne in June. Our Prime Minister committed to focus the G8 on trade, tax and transparency. He is convinced this is critical for the global economic recovery, and for delivering future prosperity which is sustainable.
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These three Ts are inter-related. To illustrate how, I will paraphrase Paul Collier, one of the world’s foremost development experts. Countries impose high trade tariffs not just because they want to protect their local industries. They often decide trade taxes are easier to impose and collect compared to other types of tax. Countries with a narrow tax base have an incentive to rely on trade tariffs and duties to meet their spending needs. But reducing trade also reduces the growth their countries so desperately need.
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So, rather than pushing developing countries to reduce their tariffs, we should be helping to raise revenues from other sources. And one way to do that is to improve transparency.
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Large companies often have highly complex structures. These exist for many good management reasons. But they can also be associated with tax avoidance. Though not illegal, aggressive tax avoidance implies an effort to circumvent norms and rules put in place by countries for social benefits on which the success of those same companies often depend.
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Complex, opaque company structures can also create the conditions for corruption and money-laundering. The Prime Minister at the World Economic Forum at Davos, earlier this year, gave a stark example.
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A few years ago a transparency initiative exposed a huge hole in Nigeria’s finances. An eight hundred million dollar discrepancy between what companies were paying and what the government was receiving for oil. A massive, massive gap. This discovery is leading to new regulation of Nigeria’s oil sector so the richness of the earth can actually help to enrich the people of that country.
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So increased transparency can help to boost tax revenue. Governments can then reduce trade tariffs. And more trade and growth then follow.
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But transparency isn’t just about boosting the tax take. It can directly help create an environment conducive to investment. If companies understand the risks they are taking, they can price it properly. Then more companies are likely to invest. And as we all know, investment is what drives economic growth.
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So back to the G8. What has been achieved this year, and what more can we do?
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First, increasing transparency in extractives. We believe progress can be made on mandatory reporting of payments by companies. The Extractive Industry Transparency Initiative (EITI) seeks to reduce corruption in the mining sector which often operates in countries without strong rule of law.
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As an example, in 2008, exports of oil and minerals from Africa were worth roughly $370 billion – almost ten times the value of international aid. If more tax could be collected from these operations through improved transparency the impact would be enormous.
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The UK formally launched its EITI membership on 9 July, aiming to fully join by 2015. At the G8 Summit, EU G8 members agreed to quickly implement the EU Accountancy and Transparency Directive and the US and France joined the UK in seeking candidacy status for the new EITI standard. Russia and Japan also said they would support the goal of EITI and would encourage their national companies to become supporters. All of this was helpfully followed up at the G20 Summit, which agreed the G20 Anti-Corruption Working Group would follow EITI further.
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Second, greater transparency in land deals. The lack of transparency around land deals can create a barrier to responsible investment. Weakening livelihoods and ignoring rights of local communities. Creating space for corruption and money laundering and reduce space for legitimate business activity. Encouraging responsible and sustainable investment in land is essential for economic growth and food security. At the G8 Summit, seven land partnerships were announced with developing countries to accelerate and target support to countries’ existing governance programmes in conjunction with civil society, in particular farmers.
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Third, open data. Open data puts information in the public domain. It drives innovation and economic growth. It provides a basis for better policies and decisions. And it increases accountability of governments to their citizens. Governments already publish a wide range of data, but we want to see them take steps to make it more accessible and comparable.
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At Lough Erne, the G8 published a transformative Open Data Charter and technical annex. The Open Data Charter sets out 5 strategic principles that all G8 members will act on. These include an expectation that all future government data will be published openly by default, alongside principles to increase the quality, quantity and re-use of the data that is released.
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G8 members have also identified 14 high-value areas – from education to transport, and from health to crime and justice – from which they will release data. These will help unlock the economic potential of open data, support innovation and provide greater accountability. G8 Open Data action plans will be published by the end of October this year.
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Fourth, preventing money laundering. By working with developing countries and increasing their capacity for revenue collection, we can help stamp out bribery and corruption. At the G8 Summit, breakthroughs were made on tax avoidance, including giving momentum to set a new standard in the automatic exchange of information, based on FATCA [Foreign Accounts Tax Compliance Act], and giving more practical support to LDCs to build capacity to collect taxes, through bilateral programmes or by supporting the OECD’s Tax Inspectors Without Borders.
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So the G8 has made an important contribution to the transparency revolution. But this is a global issue which needs a global approach and global political will. The UK is now spending the rest of its presidency implementing the commitments made and ensuring the agenda is being taken forward in other fora. G20
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The G20 Summit in St Petersburg made further progress in several areas, including promoting tax transparency and the automatic exchange of information. Since the Seoul Summit in 2010, the G20 has been building its anti-corruption work, when it established the G20 Anti-Corruption Action Plan. This aims to get more non G20 countries to accede to the UN Convention Against Corruption and encourages the adoption and enforcement of strong laws against international bribery.
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South Africa and the UK both signed the convention on 9 December 2003, the first day on which this was possible, and South Africa ratified its signature more than a year before the UK. This Plan has already secured significant results: China has criminalised foreign bribery and Russia is a full participant in the OECD Working Group on Bribery.
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The G20 Anti-Corruption Working Group has also agreed an Action Plan which commits members to work towards common standards in areas such as whistleblower protection, visa denial, asset recovery, public sector procurement and fiscal and budgetary transparency. Open Government
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Open government is another key aspect of transparency. Corruption needs dark corners to hide in. Shining a light on what is happening in government makes it harder. The Open Government Partnership (OGP) is a coalition of governments and civil society organisations working to advance transparency and accountability in government. It aims to secure concrete commitments from countries to increase the responsiveness of government to citizens, counter corruption, promote economic efficiencies, harness innovation and improve the delivery of public services.
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The United Kingdom is now co-chair of the Open Government Partnership, and will host an OGP Summit next month which will bring together leading practitioners from around the world for a celebration of what open government can achieve, and inspire greater ambition and collective action for all on transparency.
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Along with the UK, South Africa was one of the 8 founding governments of the OGP. And, through the OGP, through the G20, through the African Union, South Africa has an important role to play internationally. It can use its influence to help to build regional, continental and international commitment to promoting transparency and tackling corruption.
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As South Africa and many other countries and institutions have made clear, the tax, trade and transparency agenda is one which both builds on existing African discussions and resonates across the continent.
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Demonstrating progress on these issues is crucial for creating jobs and supporting growth in developed and developing economies alike. We look forward to working together to implement this agenda - opening up intra-African trade, establishing fairer tax practices, and ensuring companies are transparent about the revenues they pay. I know that South Africa is already providing a positive example for other nations to follow – for example through its transparent budgeting, and has played a leading role on the African Union panel on illicit capital flows, the Africa Progress Panel’s report on “Equity in Extractives” and in the Open Government Partnership.
Minimising Bribery
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Now, the heading of today’s event is: Minimising Bribery Risks and Exposure to Complex and Costly Global Government Investigations. I would therefore like to conclude by saying a bit about the United Kingdom Bribery Act.
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Britain is no stranger to anti-corruption initiatives, with various pieces of anti-corruption legislation going over a hundred years. But we accepted a few years ago the view of the OECD and others that our anti-corruption framework was out of date and ineffective. And some notorious cases came to light.
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The United Kingdom Bribery Act of 2010 is the response: it provides for the first time a clear and comprehensive legal framework, within which those fighting corruption can work more effectively. This law reflects the UK’s commitment in the fight against bribery and paves the way for competitive but fair practice.
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I don’t propose to go into further detail on this – I know that Satnam Tumani will be covering it separately next and is much better qualified than me to comment. But the key point I would make is that it applies to non-UK companies operating in the United Kingdom and to UK companies working overseas.
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The other important point is that UK companies are putting in place robust policies and practices to ensure they comply with the law. And I’m convinced that this will help them do business internationally and help developing countries boost economic growth.
Conclusion
- So in conclusion, the UK has taken such a strong stance on bribery because we believe corruption is so harmful to economic growth and undermines the social fabric of societies. We have put in place a world-class legal and enforcement framework to tackle our own problems. But we are working with others to raise standards globally. That is why we are using our G8 Presidency to push for more global action and we value our partnership with South Africa, both bilaterally and in the various international fora in which we work together and look forward to building on that in the future.