Ambassador IM, distinguished guests, Ladies and Gentlemen, I am honoured to be speaking at this conference on anti-corruption.
Corruption is present in every society, at every stage of development. No country is immune. Some argue that corruption is necessary to get things moving and a part of everyday life. And it is undeniable that corruption is most prevalent in countries where government is failing to provide the services it should.
The solution is not simply to accept corruption. The solution is better government. From an economic perspective, corruption distorts competitive markets and leads to the misallocation of resources. From a social perspective, it undermines the rule of law and public trust in politicians, public servants and business leaders.
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. So if IMF is estimating global growth of only 3.25% this year, it is clear that tackling corruption makes economic sense.
So what are we doing about it?
First, the global context. The United Kingdom has the Presidency of the G8 this year. Our Prime Minister is committed to really focusing efforts of the G8 and he has chosen to prioritise trade, tax and transparency. The United Kingdom is convinced that the global economic recovery, and sustainable future prosperity depends on getting these right.
To illustrate how these three areas – trade, tax and transparency – can interact, 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.
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.
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.
Complex, opaque company structures can also create the conditions for corruption and money-laundering.
The United Kingdom’s Prime Minister, David Cameron, at the World Economic Forum at Davos, earlier this year, gave a stark example:
A few years back 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. The discovery of this 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.
So increased transparency can help to boost tax revenue. Governments can then reduce trade tariffs. And more trade and growth then follow.
But transparency isn’t just about boosting the tax take. It can directly help create an environment conducive to investment. If companies are able to conduct proper due diligence because reliable information is readily available – then more companies are likely to invest in an economy.
So back to the G8. What does the UK want to change?
On transparency, the UK is pushing for progress in three areas.
First on enhanced transparency. We think 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 operate in countries without strong rule of law. 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 potential impact on the lives of Africans would be enormous.
Secondly, preventing money laundering. By working with developing countries and increasing their capacity for revenue collection, we can help stamp out bribery and corruption.
Thirdly, increasing transparency in aid. The United Kingdom believes that making aid flows more transparent enables people in developing countries to hold their governments to account on how the aid money is spent.
However, the G8 is not the only forum that can help to tackle corruption. There is the OECD has its Anti Bribery Convention, the UN Convention Against Corruption, and in this region, the Asian Development Bank together with the OECD has launched the Anti Corruption Initiative for Asia Pacific. We want these important initiatives to set and police high standards for all the major economies. That way our companies can be confident that all firms are operating under the same set of rules. This should give them the confidence to refuse demands for bribes knowing that they will not lose business to unscrupulous competitors.
The G8 represents 50% of global GDP and has the responsibility to set the example. But this applies equally to the G20. At the Seoul Summit in 2010, G20 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. This Plan has already secured significant results. India has ratified the UN Convention Against Corruption, China has criminalised foreign bribery and Russia is a full participant in the OECD Working Group on Bribery. 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 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. The United Kingdom is now co-chair of the Open Government Partnership, complementing our drive for transparency as G8 President.
You may well be asking yourself, why does this matter to me? Korea is not a developing country. But Korea is the only country that has made the transition from aid recipient to aid donor. So it is seen as a model for others to follow. This gives Korea a particular responsibility to show that it is acting to stamp out corruption. We welcome the public pledges President Park Geun-hye has made to stamp out corruption and bribery. For example, the proposals to reform the Fair Trade Commission demonstrate a commitment to greater fairness and transparency. Internationally, Korea’s role in the G20, membership of the Open Government Partnership and its top rank in the UN’s global survey on e-government are all demonstrations of Korea’s commitment to promoting transparency and tackling corruption.
And just by being here today, you are all playing your part in helping Korea set a strong example.
I would like to say a word about the United Kingdom Bribery Act.
Why did the United Kingdom adopt the United Kingdom Bribery Act?
Well, Britain is no stranger to anti-corruption initiatives, with various pieces of anti-corruption legislation going over a hundred years. But in the middle of the last decade we accepted 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. 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 robust law reflects the UK’s role in the fight against bribery and paves the way for competitive but fair practice.
The United Kingdom Bribery Act focuses on four areas of corruption. First, active bribery: promising or giving a financial or other advantage. Secondly, passive bribery: agreeing to receive or accepting a financial or other advantage. Thirdly, bribery of foreign public officials. And fourthly, bribery committed on behalf of a company.
So what does the Act do in detail?
Well it created two general offences covering active and passive bribery so it covers both the giver and the receiver of the bribe.
It created a new offence of bribery of a foreign public official. It created a new offence of failure by a commercial organisation to prevent a bribe being paid on its behalf. And this includes if employees of affiliates commit bribery for the organisation’s benefit. However, it will be a defence if the organisation can demonstrate that it has adequate procedures in place to prevent bribery.
On the punishment side, the Act raises imprisonment from seven to ten years and allows for an unlimited fine.
It enables prosecution of British wrongdoers even if they commit the crime abroad.
It discourages facilitation payments.
It places personal liability on senior management who pretend not to notice.
Perhaps the most important aspect for you to understand is that the Act applies to non-UK companies operating in the United Kingdom and to UK companies working overseas.
Now encouraging trade and investment is at the core of my job as Ambassador. But I don’t believe the United Kingdom’s robust law on corruption will deter investment in Britain. Quite the reverse. The United Kingdom’s anti-corruption regime is now one of the most effective in the world. So I believe, that makes the United Kingdom an easier and more attractive place in which to do business. It makes United Kingdom firms more reliable partners. The United Kingdom takes corruption and bribery extremely seriously precisely because we believe in competitive markets and free trade.
And I can reassure you that the Bribery Act doesn’t affect standard business practices. The United Kingdom’s Serious Fraud Office (SFO), takes a common sense approach. For example, they have said:
Normal corporate hospitality is a part of business and is a part of building up the relationships that are needed in order to make business work. This is not a problem. Buying meals and putting foreign public officials up for reasonable accommodation is not a problem. Nor is flying a group of foreign public officials across the world to see one of your sites so that they can get the best possible view of what you are doing and whether they should offer you a contract. Normal business. This is to be encouraged.
However, the Serious Fraud Office does make clear, that companies should not use a legal or technical interpretation of the Act to continue corrupt practices and think they can get away with it.
The Bribery Act also covers facilitation payments. In this case, facilitation payments are typically small, unofficial payments made to secure or expedite a routine government action by a government official, when a company has already paid for, or is entitled to, that action. A typical example might be “inspection fees” for clearance of imported equipment through customs.
In fact, facilitation payments were not allowed in the United Kingdom before the Act. But the Act now requires companies to take a zero-tolerance approach to these payments and have a clear plan to eliminate them. The United Kingdom Serious Fraud Office has said:
The type of case where we are likely to want to consider prosecution will be one where corporations have no intention of ceasing to use facilitation payments. Instead they want to continue. Indeed, they look at this as a way of obtaining an advantage over those corporations that have banned them.
Guidance from the UK’s Ministry of Justice is readily available to help companies comply with the Bribery Act. This covers six principles for compliance.
First a company should have in place proportionate procedures. The Act is not about drowning companies in additional paperwork.
Secondly top-level commitment. This means the senior management has to create a culture that does not tolerate or reward corrupt behaviour.
Thirdly companies should carry a corruption risk assessment which involves regular reviews of procedures and risks.
Fourthly companies should carry out due diligence on their people and agents.
Fifthly companies should talk to their staff and train them in anti-corruption.
And finally, companies should monitor and review their anti-corruption procedures.
If a company is deemed to have implemented these six principles and they are caught bribing someone, they can make a legal defence – although, of course, it will be up to the court whether they are successful or not!
You have also heard today about the US Foreign and Corrupt Practices Act – FCPA. I thought it might be useful to highlight the key differences with the UK Bribery Act.
The offence of failing to prevent bribery does not appear in the US Act. The UK Act includes giving and receiving of commercial bribes, not only bribes to foreign officials. Punishments in the UK are more severe – as I’ve said already, up to 10 years in prison, unlimited fines and personal liability for senior managers. The UK Act has no exceptions for facilitation payments. In contrast, the US Act allows minor payments to expedite governmental processes like obtaining permits. The US Act provides a defence if someone who is charged can prove that the payment to a foreign official was “a reasonable and bona fide expenditure directly related to the promotion, demonstration, or explanation of products or services or the execution or performance of a contract.” There is no such defence under the Bribery Act.
Now this may all seem quite theoretical and technical. I would love to be able to illustrate these points with some practical examples of prosecutions under the new Act, but it is still early days. Corruption investigations can be difficult and lengthy. They require resources and persistence. All I can say at this stage is that there are a number of investigations underway. But the more 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.
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. The vast majority of UK firms see corruption as an obstacle to doing business. We want UK law-abiding companies, who are in the majority, to not be disadvantaged by those who play dirty. So we have put in place a world-class legal and enforcement framework to tackle our own problems. We want to help other countries raise their own standards to tackle the problem across the world. That is why we are using our G8 Presidency to push for more global action. We are delighted that Korea is also engaged in that task and hope we can work together in the future.