National Association of Attorneys General
This is the last of four public corruption articles to appear in the monthly NAAGazette. These articles were developed by the attorneys who participated in the June 2012 National Attorneys General Training and Research Institute (NAGTRI) International Fellows Program.
This group was assigned to focus on corporate corruption. They were asked to discuss various ways in which corporations commit corrupt acts as well as possible solutions to this problem.
By Firas Al Hadithi, Head of International Relations Bureau, Qatar Attorney General’s Office; Lloyd Babb, Director of Public Prosecutions, Office of the Attorney General of New South Wales, Australia; Justine Falconer, Crown Counsel, Crown Law Office of Wellington, New Zealand; Stephen ImMasche, Assistant Statewide Prosecutor, Office of the Florida Attorney General; and Steven Kayuni, Principal State Advocate, Malawi Ministry of Justice
Although the dictionary gives precise definitions of “corruption,” the United Nations Convention Against Corruption (UNCAC) and other UN conventions, the Organization for Economic Cooperation and Development (OECD), and the Council of Europe instead establish the offenses for a range of corrupt behavior. For instance, the OECD Convention establishes the offense of bribery of foreign public officials while the various Council of Europe conventions regarding corruption establish offenses such as trading in influence, and bribing domestic and foreign public officials. In addition to these types of conduct, the mandatory UNCAC provisions also include embezzlement, misappropriation or other diversion of property by a public official and obstruction of justice. These conventions, therefore, define international standards on the criminalization of corruption by prescribing specific offenses rather than through a generic definition. In contrast, some Istanbul Action Plan countries take a different approach by defining corruption as a specific crime in their anti-corruption and criminal laws. In practice, these definitions of corruption are often too general or vague to be of value from a criminal law perspective. As a result, there have been very few prosecutions or convictions for these offenses.
Defining Corruption for Policy Purposes
As opposed to defining corruption for criminal law purposes, defining the term for policy purposes is much more common in international documents. One frequently used definition that covers a broad range of corrupt activities is the “abuse of public or private office for personal gain.” This definition can be a useful reference for policy development and awareness-raising as well as for elaborating anti-corruption strategies, action plans and corruption prevention measures. Apart from this general definition, there are as many different definitions of corruption as there are manifestations of the problem. These definitions vary according to cultural, legal or other factors but, even within these definitions, there is no consensus about what specific acts should be included or excluded.
Several well-regarded organizations have developed their own definitions. Transparency International, commenting on corruption in the public sector, defines corrupt behavior on the part of politicians or civil servants as that “in which they improperly and unlawfully enrich themselves, or those close to them, by the misuse of the public power entrusted to them.” Again, focusing on the public sector, the Korean Independent Commission Against Corruption promotes the reporting of “any public official involving an abuse of position or authority of violation of the law in connection with official duties for the purpose of seeking grants for himself or a third party.” The Asian Development Bank defines corruption more broadly as involving “behavior on the part of officials in the public and private sectors, in which they improperly and unlawfully enrich themselves and/or those close to them, or induce others to do so, by misusing the position in which they are placed.”
Defining Corporate Corruption
For the purposes of this paper, we have defined corporate corruption in the following manner: Any corporation or employee of a corporation who, in their dealings with a public official and seeking benefits for himself or any third party, engages in behavior which promotes the violation of law or abuse of power on the part of the government official.
Scope of Corporate Corruption
Historically, corporate corruption has generally been defined by the term “bribery.” However, modern understanding of corporate corruption has recognized that there are a myriad of ways that the private sector might pervert governmental processes. The modern conventions dealing with corruption have adopted a more comprehensive approach and, in a significant development, have included recovery of assets, a major concern for countries that pursue the assets of former leaders and other officials accused, or found to have engaged, in corruption.
Consequences of Corporate Corruption
We are not, of course, the first generation to recognize or try to curb corruption occurring between corporations and countries. The British East India Trading Company won duty-free treatment for its goods exported from the Far East in the 1600s by bribing foreign rulers. Today, the essential practice of corruption in corporate dealings with foreign governments follows much the same structural pattern. No matter, however, who is corrupting whom, either foreign or domestic, the practice is not tolerable for the country or the corporation. Private sector corruption is bad for the country and bad for business.
In the 2011 World Bank’s Integrity Vice-Presidency’s Annual Report, Robert Zoellick, the former World Bank president, noted the strong link between poverty and corruption. “Poverty invites fraud and corruption,” he stated. He noted that they weaken the institutional foundation, the rule of law, on which economic growth is built so that they also undermine development and deepen poverty. The negative impact to a country’s economy and well-being include:
- Corruption leads to a culture of secrecy, which erodes trust and undermines democracy;
- Corruption corrodes trust in governments (both internally and externally) and, thereby stifles economic growth;
- Investment in a country without the rule of law is stifled;
- Companies adhering to the World Bank compliance codes will leave countries where corruption is rampant, leaving business to inferior companies;
- Corruption frequently centers on the subversion of regulations, such as the protection of historical and natural resources’
- Societal effects include the smothering of individual initiative and ambition; and
- Respect for authority evaporates in the wake of corruption, anger and resentment build, and economic inequality grows.
The cost of corporate corruption to a nation’s economic — and, indeed, political — stability is obvious. An example of how this affects the nations’ citizens is Myanmar which is near the bottom of Transparency International’s Index rankings. Its weak economy, a result of its lack of transparency and corruption, forces thousands of its citizens to immigrate to Thailand where, because of local hiring laws, these workers must accept lower wages than Thai citizens receive.
- Private sector corruption is bad for business as well.
- It increases the cost of doing business by an average of 10%.
- Kills business opportunities generally.
- Promotes a culture of corruption within your organization and among corporations.
- Loss of corporate reputation and credibility.
- Stiff penalties. Siemens, the German engineering giant, was forced to pay combined sanctions of over EUR 1.24 billion for engaging in foreign bribery around the world. That is the equivalent of $1,634,940,000.00. Former Siemens executives are also facing criminal charges.
- Innovation and creativity suppressed; new products not developed. Only through free trade on a fair and even playing field is development and creativity fostered.
Reducing Corporate Crime
According to the UNCAC, there are three ways to fight corruption: preventive measures, criminalization and law enforcement, and international cooperation.
- Preventive policies include:
- Establishment of anti-corruption bodies in the country and teams within businesses;
- Transparency in financial and political terms;
- Development of anti-corruption policies;
- Independent dissemination of information and knowledge adequately resourced;
- Properly-trained corporate staff;
- Safeguards that promote efficiency, transparency and recruitment based on merit;
- Codes of conduct and requirements for disclosures with appropriate disciplinary measures for noncompliance;
- Measures to prevent money laundering;
- Transparency and accountability in matters of public finance, particularly in very critical areas such as public procurement;
- Partnership between the private and public sectors; and
- Open records laws so civil society is engaged.
A law enforcement approach to combating corporate corruption requires specific legislation that criminalizes not only bribery and embezzlement, but also conduct not already criminalized in many countries, such as trading in official influence and other abuses of official functions. Countries should criminalize acts that include both active and passive bribery, embezzlement of public funds, obstruction of justice, and the concealment, conversion, or transfer of criminal proceeds through money laundering. Sanctions should extend to those who participate in, or attempt to commit, corruption offenses.
Additional measures to hinder corruption would be overcoming obstacles that currently arise in prosecuting these offenses. One example is bank secrecy laws which prevent law enforcement and prosecutors from discovering illegal gains and pursuing money laundering charges. The UNCAC agreement includes protection of witnesses, victims, and whistle blowers; these protections assist in the investigation and prosecution of corporations, and promote integrity in the corporate setting.
International cooperation is essential in ferreting out and prosecuting corruption in this global economy. Countries should assist one another in every aspect of the fight against corruption, including prevention, investigation, and the prosecution of offenders. Particular emphasis should be focused on mutual legal assistance, in gathering and transferring evidence for use in court, and the extradition of offenders.
The UNCAC adapted the principle of dual criminality. It can only be insisted on where the assistance would require coercive action, such as arrest or search and seizure. Thus, countries are encouraged to allow a wider scope of assistance without dual criminality, where possible. Also, where dual criminality is required, it is sufficient that the conduct at issue constitutes a crime in both jurisdictions; the language of the laws need not coincide exactly. Under UNCAC, cooperation in criminal matters is mandatory. In civil administrative matters, state parties are encouraged to cooperate.
UNCAC also focuses on parties obligations to fight corruption in the private sector in Article 12. That article includes various measures to achieve the goal of preventing private sector corruption.  Additionally, as a matter of public policy, countries should encourage specialized governmental agencies to integrate anti-corruption policies for corporations into their strategies. Countries might also consider creating a national black list of corrupt corporations, similar to terrorism black-listed entities. Finally, schools and universities, particularly teaching business courses, should include as mandatory courses on tackling corruption in all of its forms and ethical behavior for businesses.
Overcoming corrupt behavior, both in the public and private sectors, must be a priority for all countries and for each and every private citizen. This will be an on-going struggle as countries evolve and people reach towards freedom. Tackling private sector corruption will go far in the goal of overcoming public corruption, but it will continue to take the collective will of the international community to continue to fight corruption at all levels.
 “The cost of corruption makes itself felt at multiple levels. Investors are wary of countries where systems are known to be corrupt because they cannot assess the likely risk or return on their investment. Organisation for Economic Co-operation and Development, available at http://www.oecd.org.
 See “Clean Business is Good Business,” available at https://members.weforum.org/pdf/paci/BusinessCaseAgainstCorruption.pdf.
 Nancy Boswell, former CEO and president of the U.S. Chapter of Transparency International, stated at the meeting of the International Fellows at NAAG offices on June 7, 2012: “Many sections of the corporate community have recognized that it is in nobody’s interest to engage in corrupt conduct in foreign countries. It is just a race to the bottom.”
 Merly Khouw, lead investigator and deputy manager, External Investigation, World Bank, stated, when speaking to the International Fellows at NAAG offices on June 7, 2012: “The sanctions that can be imposed on a company who corruptly uses World Bank sourced funds include public notification of findings of corrupt conduct. For companies working on World Bank Projects, it is the reputation risk and negative publicity that they fear the most.”