Congressional Documents
105th Congress Exec. Rpt.
SENATE
2d Session 105-19
_______________________________________________________________________
CONVENTION ON COMBATING BRIBERY OF FOREIGN PUBLIC OFFICIALS IN
INTERNATIONAL BUSINESS TRANSACTIONS
_______
July 16, 1998.--Ordered to be printed
_______________________________________________________________________
Mr. Helms, from the Committee on Foreign Relations, submitted the
following
R E P O R T
[To accompany Treaty Doc. 105-43]
The Committee on Foreign Relations, to which was referred
the Convention on Combating Bribery of Foreign Public Officials
in International Business Transactions, adopted at Paris on
November 21, 1997, by a conference held under the auspices of
the Organization for Economic Cooperation and Development
(OECD), signed in Paris on December 17, 1997, by the United
States and 32 other nations, having considered the same,
reports favorably thereon with one understanding, one
declaration and three provisos, and recommends that the Senate
give its advice and consent to the ratification thereof as set
forth in this report and the accompanying resolution of
ratification.
CONTENTS
Page
I. Purpose..........................................................1
II. Background.......................................................2
III. Summary..........................................................2
IV. Entry Into Force and Termination.................................7
V. Committee Action.................................................7
VI. Committee Comments...............................................8
VII. Explanation of Proposed Convention..............................14
VIII.Text of the Resolution of Ratification..........................14
IX. Appendix........................................................19
I. Purpose
The primary purpose of the Convention on Combating Bribery
of Foreign Public Officials in International Business
Transactions (``Convention'') is to require Parties to the
Convention to criminalize bribery of foreign public officials
in order to obtain or retain business or other improper
advantage in the conduct of international business.
II. Background
On November 21, 1997, negotiators from thirty-three
countries (the twenty-eight Organization for Economic
Cooperation and Development (``OECD'') member states plus
Argentina, Brazil, Bulgaria, Chile and Slovakia) signed the
Convention at the OECD in Paris.
At the urging of the United States, the OECD adopted in
1994 a Recommendation on Combating Bribery in International
Business Transactions, and in 1996 adopted a Recommendation on
the Tax Deductibility of Bribes of Foreign Public Officials. A
Revised Recommendation on Combating Bribery in International
Business Transactions was approved at a May 1997 meeting of
OECD Ministers. Included was an annex of agreed common
elements, which was the basis for convention negotiations.
Three rounds of negotiations were held in July, October, and
November. The Convention was signed in Paris on December 17th,
1997, and was submitted to the Senate on May 4, 1998.
III. Summary
a. general
The Convention obligates the Parties to criminalize bribery
of foreign public officials. This is defined to include
officials in all branches of government, whether appointed or
elected; any person exercising a public function, including for
a public agency or public enterprise; and any official or agent
of a public international organization. A public function
includes any activity in the public interest delegated by a
foreign country. A public enterprise is any enterprise over
which the government or governments may, directly or
indirectly, exercise a dominant influence. An official of a
public enterprise shall be deemed to perform a public function
unless the enterprise operates on a normal commercial basis in
the relevant market, i.e., on a basis which is substantially
equivalent to that of a private enterprise, without
preferential subsidies or other privileges.
The Convention does not specifically cover political
parties. Some persons who are not formally designated as public
officials but who may in fact perform a public function (e.g.,
political party officials in single party states) may, under
the legal principles of some countries, be considered as
foreign public officials. In addition, under the legal systems
of some countries, an advantage promised or given to a person
in anticipation of that person becoming a foreign public
official may fall within the Convention's scope.
The negotiators agreed to apply ``effective, proportionate
and dissuasive criminal penalties'' to those who bribe foreign
public officials. Countries whose legal systems lack the
concept of criminal corporate liability must provide for
equivalent non-criminal sanctions, including monetary
penalties. The Convention requires that countries be able to
seize or confiscate the bribe and bribe proceeds (e.g., net
profit), or property of similar value, or apply monetary
sanctions of comparable effect.
The Convention requires Parties to take necessary measures,
within the framework of their relevant laws and regulations,
that prohibit the establishment of off-the-books accounts and
similar practices used to bribe foreign public officials or to
hide such bribery. Parties shall make bribery of foreign public
officials a predicate offense for purposes of money laundering
legislation on the same terms as bribery of domestic public
officials.
Parties are to establish jurisdiction over offenses that
are committed in whole or in part in their territories. Parties
may rely on the general jurisdictional principles--nationality
or territoriality--recognized by their legal systems. The
territorial basis for jurisdiction is to be interpreted broadly
so that an extensive physical connection to the act of bribery
is not required. The Convention provides that Parties will
review their current bases for jurisdiction and take remedial
steps if they are not effective in the fight against the
bribery of foreign public officials. Parties shall consult when
more than one party asserts jurisdiction. Participating
governments pledged to work together to provide legal
assistance relating to investigations and proceedings within
the scope of the Convention and to make bribery of foreign
public officials an extraditable offense.
At the May 1997 OECD Council meeting, Ministers recommended
that member states submit to national legislatures by April 1,
1998, legislation to criminalize bribery of foreign public
officials and seek the enactment of such laws by the end of
1998. The Convention requires the Parties cooperate in a
follow-up program, within the framework of the OECD, to monitor
and promote full implementation.
The Convention will enter into force when five of the ten
largest OECD exporting counties, which by themselves represent
60 percent of the combined total exports of those ten
countries, deposit their instruments of ratification. If this
has not occurred by the end of 1998, the Convention will enter
into force when at least two signatories have deposited their
instruments of ratification and declare their willingness to be
bound.
b. key provisions
The Offense. Article 1 of the Convention requires each
Party to take measures to establish that it is a criminal
offense under its law for any person intentionally to offer,
promise, or give any undue pecuniary or other advantage to a
foreign public official, for that public official, or for a
third party, in order that the official act or refrain from
acting in the performance of official duties so that an
international business will obtain or retain business or any
other improper advantage. Each Party to the Convention is also
required to criminalize complicity in an act of bribery of a
foreign public official.
``Foreign public official'' is defined to include persons
holding legislative, administrative, or judicial office of a
foreign country, whether appointed or elected; any person
exercising a public function for a foreign country, including
for a public agency or public enterprise, regardless of form,
over which a government, or governments, may, directly or
indirectly, exercise a dominant influence. This definition does
not include foreign political parties, officials, or
candidates. According to a summary prepared by the Departments
of Commerce, State, and Justice, although political parties are
not specifically covered, negotiators agreed that the
Convention will cover business-related bribes to foreign public
officials made through political parties and party officials.
Legal Persons. Article 2 of the Convention requires each
Party, in accordance with its legal principles, to establish
the liability of persons for the bribery of a foreign public
official. The commentaries on the Convention state that if,
under the legal system of a Party, criminal responsibility is
not applicable to legal persons, the Party is not required to
establish the criminal responsibility.
Criminal/Civil Penalties. Article 3 requires parties to
sanction bribery of a foreign public official with ``effective,
proportionate and dissuasive criminal penalties.'' If, under a
Party's legal system, criminal responsibility is not applicable
to legal persons, the Party shall make certain that legal
persons are subject to dissuasive and effective non-criminal
sanctions, including monetary sanctions. Effective measures
shall be taken to provide that the proceeds of bribery of a
foreign official or property corresponding to the value of the
proceeds may be subject to seizure.
Paragraph 4 of Article 3 states that each Party may
consider imposing additional civil or administrative sanctions
upon a person for bribing a foreign public official. The
commentaries on this paragraph provide that among the civil or
administrative sanctions which might be imposed are exclusion
from entitlement to public benefits or aid, disqualification
from participation in public procurement, placing under
judicial supervision, and a judicial winding-up order.
Jurisdiction. Article 4 requires each Party to establish
its jurisdiction over the bribery of a foreign public official
when the offense is committed in its territory. In addition,
each Party is required to establish jurisdiction to prosecute
its nationals for offenses committed abroad with respect to the
bribing of a foreign public official.
Enforcement. Article 5 requires Parties to enforce its
commitments under the Convention without regard to political or
economic interests. Specifically, the investigation and
prosecution of the bribery of a foreign public official shall
not be influenced by considerations of national economic
interest, the potential effect upon relations with another
country, or the identity of the natural or legal persons
involved.
Statute of Limitations. Article 6 requires Parties to apply
a statute of limitations to the offense of bribery of a foreign
public official that permits for an adequate amount of time to
investigate and prosecute. The Commentaries are silent on this
article, so it is not clear what such a time frame would be.
Money Laundering. Article 7 requires each Party, which has
made bribery of its own public officials an offense for
purposes of application of its own money laundering
legislation, to do the same for the bribery of a foreign public
official.
Accounting. Article 8 is an essential provision for
carrying out the requirements of the Convention. It requires
measures by each Party to prohibit off-the-books accounts,
inadequately identified transactions, the recording of non-
existent expenditures, the entry of liabilities with incorrect
identification of their object, and the use of false documents
for the purpose of bribing foreign public officials or of
hiding the bribery. Penalties for the violation of such
accounting laws must be ``effective, proportionate and
dissuasive.''
Mutual Legal Assistance. Article 9 requires each Party to
provide prompt and effective legal assistance to another Party
for the purpose of criminal and non-criminal investigations and
proceedings. The provision assumes dual criminality for
violations of the Convention, and prohibits any Party from
asserting bank secrecy as a reason to deny legal assistance.
Extradition. Article 10 requires bribery of a foreign
public official to be included as an extraditable offense under
the Parties' laws and extradition treaties. The Convention
permits, but does not require, each Party to use the Convention
as a legal basis for extradition. The Convention requires a
Party that denies extradition on the basis that the individual
is a national, to submit the case for prosecution in its own
jurisdiction. The provision assumes dual criminality for
purposes of extradition.
Responsible Authorities. Article 11 requires that each
Party establish a ``responsible authority'' for purposes of
mutual legal assistance and extradition. Parties must inform
the Secretary General of the OECD who the responsible authority
will be.
Monitoring and Follow-up. Article 12 requires the Parties
to follow-up on their commitments through a program that
monitors enforcement and promotes full implementation. Unless
otherwise agreed, the program will be carried out in the
framework of the OECD Working Group on Bribery in International
Business Transactions.
Final Clauses. Article 13, concerning signature and
accession, opens the Convention to signature by non-members of
the OECD which have become full participants in the OECD
Working Group on Bribery in International Business
Transactions. The Convention will enter into force on the
sixtieth day following the date of deposit of instruments for
such non-members. Article 14, concerning ratification and
depositary of the Convention, requires ratification under each
country's laws, and designates the OECD Secretary General as
the depositary for instruments of ratification.
Article 15, regarding entry into force, requires that the
Convention enter into force on the sixtieth day following the
date on which five of the ten largest exporting countries have
deposited their instruments of ratification. In the event that
this has not occurred by the end of 1998, the Convention will
enter into force when at least two signatories have deposited
their instruments of ratification, and declared its readiness
to be bound by the Convention.
Article 16, regarding amendments to the Convention,
requires that amendments be submitted to the OECD Secretary
General at least 60 days before he convenes a meeting of the
Parties to consider the amendment. Amendments must be adopted
by consensus, or by other means that the Parties determine by
consensus. Amendments will enter into force 60 days after
instruments of ratification are deposited with the OECD
Secretary General, or as specified by the Parties when the
amendment is adopted.
Article 17, regarding withdrawal, permits a Party to
withdraw from the Convention upon written notification to the
OECD Secretary General. The withdrawal will take place one year
after submission of the written notification. Parties must
cooperate even after withdrawal on requests for information or
extradition made prior to withdrawal.
c. the u.s. foreign corrupt practices act
During the mid-1970's investigations and legal actions
against numerous domestic corporations revealed the practice by
some U.S. corporations of making questionable or illegal
payments to foreign government officials. The legal and
regulatory mechanisms for dealing with these payments had
involved actions by the Securities and Exchange Commission
(SEC) against public corporations for concealing from required
public disclosure substantial payments made by the firm and the
potential for an antitrust action for restraint of trade or
fraud prosecutions by the Justice Department.
Government officials and administrators contended that more
direct prohibitions on foreign bribery and more detailed
requirements concerning corporate record-keeping and
accountability were needed to deal effectively with the
problem. The revelations of slush funds and secret payments by
American corporations were stated to have affected adversely
American foreign policy, damaged the image of American
democracy, and impaired public confidence in the financial
integrity of American corporations. Congress responded with the
passage of the Foreign Corrupt Practices Act of 1977.
After passage, Congress for a number of years considered
amending the 1977 Foreign Corrupt Practices Act. After a great
deal of debate through at least three Congresses, the Foreign
Corrupt Practices Act Amendments were signed into law as Title
V of the Omnibus Trade and Competitiveness Act of 1988 on
August 23, 1988. One provision of the 1988 Amendments
encouraged the Administration to negotiate a treaty at the OECD
that would require other countries to enact similar laws
prohibiting bribery of foreign government officials.
In many ways the OECD Convention on Bribery is very similar
to the Foreign Corrupt Practices Act (FCPA). However, there are
several differences which, if the OECD Convention is approved,
will necessitate changes in the FCPA in order for U.S. law to
conform with the OECD Agreement.
First, the FCPA currently criminalizes payments made to
influence any decision of a foreign official or to induce that
official to do or omit to do any act, in order to obtain or
retain business. An amendment will expand the scope to include
payments made to secure ``any improper advantage,'' the
language used in the OECD Convention.
Second, the OECD Convention requires Parties to cover
prohibited acts by ``any person.'' The current FCPA covers only
the issuers as defined in the 1934 Securities Exchange Act and
``domestic concerns.'' An amendment will expand the scope of
the FCPA to cover acts prohibited by the Convention of persons
other than the issuers or domestic concerns (i.e., foreign
natural and legal persons), committed while in the territory of
the United States, regardless of whether the mails or a means
or instrumentality of interstate commerce are used in
furtherance of the prohibited acts.
Third, the OECD Convention includes officials of
international agencies within the definition of foreign public
official. Accordingly, an amendment will expand the FCPA
definition of foreign public official to include officials of
public international organizations.
Fourth, the OECD Convention calls on Parties with
jurisdiction to prosecute their nationals for offenses
committed abroad to assert nationality jurisdiction over the
bribery of foreign public officials, consistent with national
legal and constitutional principles. Accordingly, an amendment
will provide for jurisdiction over the acts of U.S. businesses
and nationals, in furtherance of unlawful payments, that take
place wholly outside the United States.
Finally, an amendment to the penalty sections relating to
issuers and domestic concerns will ensure that penalties for
non-U.S. citizen employees and agents of issuers and domestic
concerns accord with those of U.S. citizen employees and
agents. (Under the current FCPA, non-U.S. citizen and agents of
issuers and domestic concerns are subject only to civil, rather
than criminal, penalties.)
IV. Entry into Force and Termination
a. entry into force
The Convention enters into force on the sixtieth day after
five of the ten largest exporting countries, as set out in the
Convention annex, have deposited instruments of ratification.
These countries must also represent 60 percent of exports of
those ten countries. For Parties that deposit instruments of
ratification after that date, the Convention shall enter into
force 60 days after deposit of instruments.
In the event that the Convention has not entered into force
by December 31, 1998, Parties may declare their willingness to
accept entry into force notwithstanding the failure to meet the
requirements set forth above. If two Parties make such
declarations, the Convention shall enter into force on the
sixtieth day following deposit of such declarations. For
Parties that deposit instruments of ratification after that
date, the Convention shall enter into force 60 days after
deposit of instruments.
b. termination
Parties may withdraw from the Convention by submitting
written notification to the Depositary. Withdrawal shall be
effective one year after the date of such notification. The
Convention requires that Parties continue to cooperate on
requests for assistance and extradition made before the date of
withdrawal.
V. Committee Action
The Committee on Foreign Relations held a public hearing on
the proposed Convention on June 9, 1998 (a transcript of the
hearing and questions for the record can be found in the annex
to this report). The Committee considered the proposed
Convention on June 23, 1998, and ordered it favorably reported
by voice vote, with the recommendation that the Senate give its
advice and consent to the ratification of the proposed
Convention subject to one understanding, one declaration, and
three provisos.
VI. Committee Comments
The Committee on Foreign Relations recommends favorably the
proposed Convention. On balance, the Committee believes that
the proposed Convention is in the interest of the United States
and urges the Senate to act promptly to give its advice and
consent to ratification. Several issues did arise in the course
of the Committee's consideration of the treaties, and the
Committee believes that the following comments may be useful to
the Senate in its consideration of the proposed Convention and
to the State Department.
a. implementation and enforcement
According to Under Secretary of State Stuart Eizenstat,
during his testimony before the Committee in support of this
Convention, the U.S. Government is aware of allegations of
bribery by foreign firms in the last year affecting
international contracts worth almost $30 billion. Such bribes
are not currently prohibited by criminal laws in their home
jurisdictions.
The Committee believes that simply ratifying this
Convention will not reverse this trend. Of primary import in
curbing bribery of foreign officials under the Convention will
be the commitment of Parties to implement and enforce fully
their obligations under the Convention. This will not be an
easy task, and in some cases may be politically difficult--
particularly in instances where corporations are owned by or
associated with the government of a Party. The Committee
therefore supports ratification of the Convention, but cautions
that it will be a hollow exercise if Parties to the Convention
view ratification simply as a political exercise to inoculate
them from criticism related to corrupt practices by their
companies. The Convention requires not only a political
commitment to oppose bribery of foreign public officials, but
requires that Parties take the next step to enact and enforce
tough laws prohibiting such activities.
Article 3(1) of the Convention requires each Party to the
Convention to provide for ``effective, proportionate and
dissuasive'' criminal penalties. In response to a question for
the record, the State Department defined such penalties as
those that:
``clearly apply to the offense of bribery of a foreign
public official; are proportionate (in the amount of
fine and/or length of imprisonment) to the seriousness
of the offense; are comparable to the penalties that
apply to bribery of a party's own public officials; and
provide a deterrent to such conduct.''
The Committee believes that a failure to fully apply such
penalties would in fact erode the deterrent quality of these
penalties. As such, the Committee has included in the
recommended resolution of ratification a requirement that the
Executive submit a detailed report to the Congress annually
regarding each Party's enforcement of its domestic laws
implementing the obligations of the Convention. Included in the
report will be a detailed account of each Party's efforts to
investigate and prosecute cases of bribery of foreign public
officials, including cases involving its own citizens. In
addition, the Executive must assess whether sufficient
resources have been provided to enforce a Party's obligations
under the Convention and whether each Party has shared
information relating to natural and legal persons prosecuted or
subjected to civil or administrative proceedings.
In the annual report's assessment of compliance with the
obligations of the Convention, the Committee anticipates that
the President will place an emphasis on the accounting of
business transactions, as required by Article 8 of the
Convention. Specifically, the Committee expects the President
to assess whether Parties are prohibiting off-the-book
accounts, inadequately identified transactions, the recording
of non-existent expenditures, the entry of liabilities with
incorrect identification of their object, and the use of false
documents for the purpose of bribing foreign officials or
hiding bribery of foreign or domestic officials.
The need for full and detailed reporting cannot be
overstated. In order to ensure this Convention has an impact in
reducing bribery in international business, increased
transparency will be required. The Committee was accommodating
in requiring the Executive to prepare a report on an annual
basis, rather than biannually, so as to ensure thorough and
detailed reporting. The Committee expects that the
Administration will take this reporting requirement seriously
and respond to each provision of the reporting requirement
directly.
Finally, the Convention places the obligation of
implementation and enforcement of the Convention's requirements
on each Party. The Committee supports this construct, and would
be concerned should there be an effort in the future to
transfer these responsibilities to the OECD or any other
international body. This should not, however, leave Parties
under the assumption that they may interpret provisions broadly
so as to undermine the intent of the Convention: to
criminalize, and thereby deter, the bribery of foreign public
officials in order to obtain or retain business or other
improper advantage in the conduct of international business.
b. defining ``foreign public official''
The legal definition given to the term ``foreign public
official'' by each Party will be pivotal in ensuring that the
obligations of the Convention have an impact on current
practices. According to the State Department, in response to a
question for the record:
The term ``foreign public official'' is meant to apply
to all persons in the legislative, administrative, or
judicial branch of government. ``Administrative'' as
used in this context is synonymous with our Executive
Branch. The term ``foreign public official'' also
includes any person exercising a public function for a
foreign country, including for a public agency or
public enterprise, and any official or agent of a
public international organization.
The Committee expects that the Executive will ensure this broad
understanding is shared by other Parties to the Convention. The
annual report required of the Executive in the resolution of
ratification requires a description of the domestic laws
enacted by each Party to the Convention, and an assessment of
the compatibility of the laws with the obligations of the
Convention. The Committee anticipates that the Executive will
assess each country's laws in relation its assertions to the
Committee regarding the broad definition of ``foreign public
official.''
One shortcoming of the proposed Convention is the failure
to include in the definition of ``foreign public official''
foreign political parties or party officials, and candidates
for foreign political office. The Administration has assured
the Committee, in response to a question for the record, that
it will work to include these officials in the definition:
U.S. negotiators made a concerted effort to have
political parties and party officials covered under the
Convention. Other delegations, however, were not
prepared to accept this, arguing that political parties
and party officials could not be considered ``public
officials'' as the term is generally understood.
At the Conclusion of the negotiations on the text of
the Convention in November 1997, United States
representatives insisted upon formal agreement on a
program of accelerated work on a number of issues not
adequately addressed in the Convention text. These
issues included bribery of political parties and
political party officials in international business
transactions, bribery of candidates for political
office, and aspects of the use of money laundering
legislation in the fight against illicit payments.
Accordingly, the OECD Council on December 11, 1997, in
approving the Convention text and recommending its
adoption by Ministers representing participating
countries, adopted a Decision committing member
countries to examining these issues and reporting
results to Ministers by the Spring 1999 annual OECD
Ministerial meeting. At the suggestion of France, two
additional issues were added to this accelerated work
plan on issues related to bribery of foreign public
officials: (a) the role of foreign subsidiaries and (b)
the role of offshore money centers.
Work on these issues will begin with the June 29-July 1
meeting of the OECD Working Group on Bribery. It is
expected that an experts group of representatives of
participating governments will be formed to outline
possible recommendations over the late summer and early
autumn, with formal Working Group discussions to begin
in earnest in November 1998. On political parties,
party officials, and candidates for political office,
the U.S. objective will be to secure member country
agreement to amend the Convention to include such
entities/individuals among those to whom payment of
bribes to obtain or retain business will be prohibited,
as is the case under the U.S. Foreign Corrupt Practices
Act. As in the negotiation of the Convention itself,
multilateral, bilateral and public diplomacy will be
required to achieve these objectives.
The Committee supports the Executive's efforts to include
political party officials and candidates in the definition. The
annual report required of the Executive emphasizes the
importance of U.S. leadership in negotiating an amendment to
the Convention by requiring the President to describe efforts
by the United States to amend the Convention to require
countries to expand the definition of ``foreign public
official,'' so as to make illegal the bribery of foreign
political parties or party officials, and candidates for
foreign political office.
Finally, the Committee is concerned by a potential loophole
in the definition of foreign public officials that would allow
individuals or corporations to bribe family members of foreign
public officials without penalty. In a response to a question
for the record, the State Department described the reach of the
Convention to family members:
The Convention, like the U.S. Foreign Corrupt Practices
Act, covers bribes offered or paid to a foreign public
official so that the official will take certain action,
or refrain from acting, in the performance of official
duties. Bribes to a family member of a foreign public
official are covered in circumstances where (1) a bribe
is paid to a family member as a conduit or
intermediary, who in turn passes it to the foreign
public official, the intended recipient; or (2) a
foreign public official directs that a bribe, intended
to induce that official to take certain action or
refrain from acting, be paid to a family member.
The Committee is concerned that in many instances the
connection between the payment to immediate family members and
the influence on a foreign public official will not be evident.
Payments to a family member who does not pass it on to a family
member who is a public official, yet enriches the family, would
not be covered under the proposed Convention. The Committee
directs the President to describe efforts by the United States
to amend the Convention to expand the definition of ``foreign
public official,'' so as to make illegal the bribery of
immediate family members of foreign public officials.
c. extradition and mutual legal assistance
Ratification of a bilateral extradition treaty granting the
authority to extradite individuals in the United States to
other nations generally reflects an endorsement of the judicial
system, and the level of respect for human rights in the nation
with which the United States enters into an extradition
relationship. Although the proposed Convention provides the
authority for extradition and legal assistance (should Parties
choose to use the Convention for such authority), the Committee
is concerned that nations may seek extradition of individuals
in the United States under the Convention even in situations
where there is no bilateral extradition treaty with the United
States authorizing extradition.
In order to ensure that this possibility does not arise,
the Committee's recommended resolution of ratification includes
an understanding that the United States will not use the
proposed Convention as the legal basis for extradition to any
country with which the United States has no bilateral
extradition treaty in force. In addition, the understanding
makes clear that even when the United States has a bilateral
extradition treaty in force, that bilateral extradition treaty,
not the Convention, will serve as the legal basis for
extradition of individuals for offenses covered under the
Convention.
This understanding thereby ensures that the crime of
bribery of foreign public officials will be a basis for
extradition--even in the case of ``list treaties'' that
enumerate the kinds of crimes upon which the United States may
extradite. At the same time, all of the provisions of the
relevant bilateral extradition treaty, including any Senate
conditions to ratification, will also apply so that it can be
assured that the normal extradition processes can be followed.
No legal basis for extradition of individuals in the United
States will exist when a Party to the Convention requesting
extradition is not also a Party to a bilateral extradition
treaty with the United States.
In the case of mutual legal assistance, the Committee's
recommended resolution of ratification includes a proviso that
ensures that any information shared under the proposed
Convention will be subject to the same Senate proviso that
typically is included in bilateral mutual legal assistance
treaties. Specifically, this proviso requires the United States
to deny assistance when essential public policy interests would
be violated. Essential public policy interests include when the
United States has specific information that a senior government
official who would have access to the information is engaged in
a felony. The proviso also makes clear that in cases where the
United States has a bilateral mutual legal assistance treaty in
force, that treaty will serve as the basis for sharing
information.
d. tax deduction of bribes to foreign public officials
Certain countries permit corporations and individuals to
deduct bribes paid to foreign officials as a legitimate
business expense. According to the State Department's response
to questions for the record, the following countries continue
to allow such deductions: Australia, Austria, Belgium, France,
Germany, Luxembourg, New Zealand, Sweden, and Switzerland.
In 1996, OECD Council members agreed to a Recommendation of
the Council on the Tax Deductibility of Bribes to Foreign
Public Officials. The Recommendation requires nations to ``re-
examine [tax measures which may indirectly favor bribery] with
the intention of denying this deductibility.'' Despite this
recommendation, the aforementioned countries continue to permit
tax deduction for bribes. Many countries are quick to talk
about the need to end corruption and to apply the rule of law
in developing countries. Yet, these efforts are undermined when
tax laws in developed countries encourage the very behavior
they criticize.
The Committee is concerned that the slow pace in which OECD
members have implemented this Recommendation may be an
indication of the lack of commitment to make real changes in
law and practice with regard to bribes paid by their
businessmen and women to foreign public officials. Ending the
tax deduction of bribes seems to be a clear first step, and the
Committee is somewhat astounded that this change in law has
been so difficult to attain. The Committee anticipates that the
Department of Treasury will continue to make this issue a
priority in its discussions in the OECD, particularly in the
OECD Working Group on Bribery in International Business
Transactions.
e. expanded efforts to combat bribery
The Convention was adopted and signed by 28 OECD Member
States and five non-OECD Members who are participants in the
OECD's Working Group on Bribery in International Business
Transactions. Australia, an OECD Member State, has initialed
the Convention, but has not yet signed it. The non-OECD Member
signatories include Argentina, Brazil, Bulgaria, Chile and
Slovakia.
The Committee recognizes that the OECD, a forum for the
highly industrialized nations, represents the ideal forum for
negotiating a Convention of this nature in part because most
major international companies are based in OECD Member States.
That said, the Committee commends the OECD's Working Group on
Bribery in International Business Transactions for involving
the five non-OECD Members, and encouraging their full
participation in the Convention. Such participation underscores
the potential for full globalization of the provisions of the
Convention.
As Secretary of State Madeleine Albright stated at the
December 17, 1997, signing ceremony for the Convention:
We recognize that supplier nations have a special
responsibility to stop this destructive practice. * * *
Indifference in the developed world legitimized
corruption in the developing world. It encouraged the
patronizing belief that the problem was cultural and
that we couldn't do anything about it. * * * At the
same time, as supplier nations in the OECD take these
steps, it is vital that nations in the developing world
meet their responsibility to act.
The Committee agrees with this assessment and notes that
becoming a Party to the Convention and fully implementing its
provisions would expand the Convention's goal of reducing
bribery in international business transactions worldwide. The
Committee therefore expects the Executive to work through
bilateral and multilateral fora to encourage other non-OECD
Members not only to become signatories to the Convention but to
fully implement and enforce the provisions of the Convention.
The annual report required of the Executive in the Committee's
recommended resolution of ratification requires a description
of U.S. efforts in this regard.
In addition, the Committee notes the importance of
combating bribery through multilateral fora outside the OECD,
and in the activities of these institutions. The Preamble of
the Convention welcomes actions taken by international
organizations such as the United Nations, the World Bank, the
International Monetary Fund, the World Trade Organization, the
Organization of American States, the Council of Europe and the
European Union. These organizations have begun to institute,
often at U.S. urging, policies to strengthen their anti-bribery
disciplines, such as: taking corruption into account in lending
practices; undertaking measures to ensure the rule of law and
promote good governance; establishing uniform procurement
rules; and enacting practices that promote transparency and
openness. The Committee recognizes that there is further work
to be done in these areas and expects that the Administration
will continue to make such efforts a priority.
Under Secretary of State Stuart Eizenstat, during his
testimony before the Committee in support of this Convention,
noted that the Administration is working in the World Trade
Organization and in regional fora in Asia and Latin America
``to encourage increased transparency in government
procurement.'' The Committee believes that efforts to adopt
aggressive anti-corruption strategies under the auspices of
such institutions represent important and complementary efforts
to the Convention, and should be continued. The Committee also
recommends that the Administration make a concerted effort to
pursue such goals through regional fora in Africa, where
corruption has represented a significant deterrent to U.S.
companies and to the development of the rule of law.
VII. Explanation of Proposed Convention
For a detailed article-by-article analysis of the proposed
Convention, see the letter of submittal from the Secretary of
State, which is set forth at pages V-X of Treaty Doc. 105-43.
VIII. Text of the Resolution of Ratification
Resolved, (two-thirds of the Senators present concurring
therein), That the Senate advise and consent to the
ratification of the Convention on Combating Bribery of Foreign
Public Officials in International Business Transactions,
adopted at Paris on November 21, 1997, by a conference held
under the auspices of the Organization for Economic Cooperation
and Development (OECD), signed in Paris on December 17, 1997,
by the United States and 32 other nations (Treaty Doc. 105-43),
subject to the understanding of subsection (a), the declaration
of subsection (b), and the provisos of subsection (c).
(a) UNDERSTANDING.--The advice and consent of the Senate is
subject to the following understanding, which shall be included
in the instrument of ratification and shall be binding on the
President:
EXTRADITION.--The United States shall not consider
this Convention as the legal basis for extradition to
any country with which the United States has no
bilateral extradition treaty in force. In such cases
where the United States does have a bilateral
extradition treaty in force, that treaty shall serve as
the legal basis for extradition for offenses covered
under this Convention.
(b) DECLARATION.--The advice and consent of the Senate is
subject to the following declaration:
TREATY INTERPRETATION.--The Senate affirms the
applicability to all treaties of the constitutionally
based principles of treaty interpretation set forth in
Condition (1) of the resolution of ratification of the
INF Treaty, approved by the Senate on May 27, 1988, and
Condition (8) of the resolution of ratification of the
Document Agreed Among the States Parties to the Treaty
on Conventional Armed Forces in Europe, approved by the
Senate on May 14, 1997.
(c) PROVISOS.--The advice and consent of the Senate is
subject to the following provisos:
(1) ENFORCEMENT AND MONITORING.--On July 1,
1999, and annually thereafter for five years,
unless extended by an Act of Congress, the
President shall submit to the Committee on
Foreign Relations of the Senate, and the
Speaker of the House of Representatives, a
report that sets out:
(A) RATIFICATION.--a list of the
countries that have ratified the
Convention, the dates of ratification
and entry into force for each country,
and a detailed account of U.S. efforts
to encourage other nations that are
signatories to the Convention to ratify
and implement it.
(B) DOMESTIC LEGISLATION IMPLEMENTING
THE CONVENTION.--a description of the
domestic laws enacted by each Party to
the Convention that implement
commitments under the Convention, and
an assessment of the compatibility of
the laws of each country with the
requirements of the Convention.
(C) ENFORCEMENT.--an assessment of
the measures taken by each Party to
fulfill its obligations under this
Convention, and to advance its object
and purpose, during the previous year.
This shall include:
(1) an assessment of the
enforcement by each Party of
its domestic laws implementing
the obligations of the
Convention, including its
efforts to:
(i) investigate and
prosecute cases of
bribery of foreign
public officials,
including cases
involving its own
citizens;
(ii) provide
sufficient resources to
enforce its obligations
under the Convention;
(iii) share
information among the
Parties to the
Convention relating to
natural and legal
persons prosecuted or
subjected to civil or
administrative
proceedings pursuant to
enforcement of the
Convention; and
(iv) respond to
requests for mutual
legal assistance or
extradition relating to
bribery of foreign
public officials.
(2) an assessment of the
efforts of each Party to:
(i) extradite its own
nationals for bribery
of foreign public
officials;
(ii) make public the
names of natural and
legal persons that have
been found to violate
its domestic laws
implementing this
Convention; and
(iii) make public
pronouncements,
particularly to
affected businesses, in
support of obligations
under this Convention.
(3) an assessment of the
effectiveness, transparency,
and viability of the OECD
monitoring process, including
its inclusion of input from the
private sector and non-
governmental organizations.
(D) LAWS PROHIBITING TAX DEDUCTION OF
BRIBES.--an explanation of the domestic
laws enacted by each signatory to the
Convention that would prohibit the
deduction of bribes in the computation
of domestic taxes. This shall include:
(i) the
jurisdictional reach of
the country's judicial
system;
(ii) the definition
of ``bribery'' in the
tax code;
(iii) the definition
of ``foreign public
official'' in the tax
code; and
(iv) the legal
standard used to
disallow such a
deduction.
(E) FUTURE NEGOTIATIONS.--a
description of the future work of the
Parties to the Convention to expand the
definition of ``foreign public
official'' and to assess other areas
where the Convention could be amended
to decrease bribery and other corrupt
activities. This shall include:
(1) a description of efforts
by the United States to amend
the Convention to require
countries to expand the
definition of ``foreign public
official,'' so as to make
illegal the bribery of:
(i) foreign political
parties or party
officials,
(ii) candidates for
foreign political
office, and
(iii) immediate
family members of
foreign public
officials.
(2) an assessment of the
likelihood of successfully
negotiating the amendments set
out in paragraph (1), including
progress made by the Parties
during the most recent annual
meeting of the OECD Ministers;
and
(3) an assessment of the
potential for expanding the
Convention in the following
areas:
(i) bribery of
foreign public
officials as a
predicate offense for
money laundering
legislation;
(ii) the role of
foreign subsidiaries
and offshore centers in
bribery transactions;
and
(iii) private sector
corruption and
corruption of officials
for purposes other than
to obtain or retain
business.
(F) EXPANDED MEMBERSHIP.--a
description of U.S. efforts to
encourage other non-OECD member to
sign, ratify, implement, and enforce
the Convention.
(G) CLASSIFIED ANNEX.--a classified
annex to the report, listing those
foreign corporations or entities the
President has credible national
security information indicating they
are engaging in activities prohibited
by the Convention.
(2) MUTUAL LEGAL ASSISTANCE.--When the United
States receives a request for assistance under
Article 9 from a country with which it has in
force a bilateral treaty for mutual legal
assistance in criminal matters, the bilateral
treaty will provide the legal basis for
responding to that request. In any case of
assistance sought from the United States under
Article 9, the United States shall, consistent
with U.S. laws, relevant treaties and
arrangements, deny assistance where granting
the assistance sought would prejudice its
essential public policy interests, including
cases where the Responsible Authority, after
consultation with all appropriate intelligence,
anti-narcotic, and foreign policy agencies, has
specific information that a senior government
official who will have access to information to
be provided under this Convention is engaged in
a felony, including the facilitation of the
production or distribution of illegal drugs.
(3) SUPREMACY OF THE CONSTITUTION.--Nothing
in the Convention requires or authorizes
legislation or other action by the United
States of America that is prohibited by the
Constitution of the United States as
interpreted by the United States.
A P P E N D I X
CONVENTION ON COMBATING BRIBERY OF FOREIGN
PUBLIC OFFICIALS IN INTERNATIONAL
BUSINESS TRANSACTIONS
C O N T E N T S
----------
Page
Eizenstat, Hon. Stuart E., Under Secretary of State for Economic,
Business and Agricultural Affairs.............................. 23
Heimann, Fritz F., Chairman, Transparency International USA,
Washington, DC................................................. 50
Appendix
Responses to Additional Questions Submitted for the Record by the
Committee...................................................... 61
Letter to Chairman Helms, signed by Robert E. Rubin, Secretary of
the Treasury, Janet Reno, Attorney General, Charlene
Barshefsky, U.S. Trade Representative, Madeleine K. Albright,
Secretary of State, William M. Daley, Secretary of Commerce,
and Arthur Levitt, Chairman, Securities and Exchange
Commission..................................................... 83
Letter to Chairman Helms from William J. Hudson, Chief Executive
Officer and President, AMP Incorporated........................ 83
Letter to Chairman Helms from Stanley J. Marcuss, Partner, Bryan
Cave, LLP, Washington, DC...................................... 84
CONVENTION ON COMBATING BRIBERY OF FOREIGN PUBLIC OFFICIALS IN
INTERNATIONAL BUSINESS TRANSACTIONS (TREATY DOC 105-43)
----------
TUESDAY, JUNE 9, 1998
U.S. Senate,
Committee on Foreign Relations,
Washington, DC.
The committee met at 10:43 a.m., in room SD-419, Dirksen
Senate Office Building, Hon. Jesse Helms (chairman of the
committee), presiding.
Present: Senators Helms, Hagel, Sarbanes, Robb, and
Feingold.
Senator Hagel. Good morning. One point of clarification. I
am not Chairman Helms. I am Senator Hagel and because I ran
into my friend Senator Sarbanes who suggested maybe I could
handle the gavel for 5 or 10 minutes as we are getting Senator
Helms here--there was, I understand some miscommunication
between Senator Helms and the keys to his car.
But nonetheless, he is on his way and I have been asked to
see if we can kick this off and get right to business. With
that, I welcome the Under Secretary of State, Mr. Eizenstat.
Secretary Eizenstat, nice to see you again.
I would now ask our friend and colleague, Senator Sarbanes,
for his statement.
Senator Sarbanes. Well, thank you very much, Mr. Chairman.
I am very pleased to welcome Stu Eizenstat back before the
committee. It is always a pleasure to see him. I have to say I
think he is one of the most effective people in our Government,
and anytime he is given an assignment, I always sort of breathe
a sigh of relief because I figure it is going to get worked
through to a successful conclusion.
I just might make reference to the incredible work he has
been doing with respect to Nazi gold, which is a very difficult
and sensitive issue. I would just note for the record there was
a very strong editorial in this morning's Washington Post with
respect to his efforts in that regard.
On the subject for today, this Convention on Combating
Bribery of Foreign Public Officials in International Business
Transactions, I think this is an extremely important measure
and one that we ought to welcome with open arms and try to move
through the Congress as quickly as we can.
Most governments consider bribery of their own public
officials a serious offense for both the payor and the
recipient. Except for the United States, however, bribery of
foreign officials has generally been treated in a more
ambiguous manner.
Now, the United States more than 2 decades ago passed the
Foreign Corrupt Practices Act. We in effect said to our
business people, well, you cannot go overseas and bribe people.
We had some instances of that occurring, and then we had very
serious political ramifications and consequences. So, we
enacted that legislation.
But other governments have refrained from imposing legal
sanctions on such activity which occurs outside of their own
country. They impose sanctions if people try to bribe their own
officials, but then they go abroad and bribe other officials,
and they just kind of shrug their shoulders about it. In fact,
some of those governments have even allowed tax deductions for
their corporations who bribe foreign officials.
Now, I am very much heartened by the fact that we have been
able to secure a treaty among OECD members that helps combat
the unacceptable practice of corporate bribery of foreign
public officials.
The impetus to move on this issue came from the Congress
which called on the executive branch in the Omnibus Trade bill
of 1988 to work through the OECD to arrive at a common anti-
bribery position. Now, some have asserted that the treaty does
not go as far as it was hoped, but nevertheless it sets us on a
course to pursue similar actions and efforts and other
international arena and to broaden anti-corruption efforts in
cooperation with our competitors.
Implementation will also help U.S. corporations enjoy a
more level playing field in their international business
transactions, something that is very important in increasing
globalization of the world's economy. Apparently what moved
some other countries was their businesses finally came to them
and said, well, we are getting shaken down everywhere we go and
we need this kind of protection. The American companies say,
well, we cannot do that because we have a law against it. So,
that was an impetus. Out of that very negative situation has
come a positive, so to speak.
I am sure that we all on this committee share a deep
interest in these international efforts to combat corruption.
In addition to dealing with this convention, we will have to
amend, in some small respects, the Foreign Corrupt Practices
Act that we enacted in order to conform it with the treaty's
provisions. That will be handled in the Banking Committee which
has jurisdiction over that legislation. I serve on that
committee. I think there is strong bipartisan support in that
committee for making the changes. I think the orderly way to
proceed is to move this convention and then move the
legislation either parallel or right behind it. So, I am very
hopeful that this committee and the Banking Committee can move
forward expeditiously to approve this treaty and then to enact
the legislation that is required to implement it.
I know Secretary Daley was very much involved in those
negotiations, some very tough negotiations. I think he did a
very good job, and I know Secretary Eizenstat has been very
intimately involved with this issue as well.
So, Mr. Chairman, this is a very important hearing. I would
hope from the perspective of all the members of the committee,
this is a very positive development, and I hope we can move it
through promptly, as we stand only to benefit from it.
Senator Hagel. Senator Sarbanes, thank you. Senator Robb?
Senator Robb. Thank you, Mr. Chairman.
I have no formal opening statement. I would just like to
associate myself with the remarks made by the Senator from
Maryland. I share both the frustrations that he articulated and
the goals that he has laid out, and I think that this is an
important hearing and I appreciate your holding it. I thank
you.
Senator Hagel. Senator Feingold?
Senator Feingold. Mr. Chairman, I do have a few remarks
about this very important subject. Mr. Eizenstat.
I appreciate the opportunity to be here today to consider
the Convention on Combating Bribery of Foreign Public Officials
in International Business Transactions. The convention seeks to
establish worldwide standards beginning with most of the major
industrialized countries for the criminalization of the bribery
of foreign officials to influence or retain business.
Mr. Chairman, the fact that the committee is poised to
provide its advice and consent to this convention I think is an
exceptional event.
It was just 20 years ago that Congress passed the Foreign
Corrupt Practices Act, the FCPA. This landmark legislation,
which I am proud to say was sponsored by one of Wisconsin's
most respected public officials, Senator William Proxmire, was
enacted after it was discovered that some American companies
were actually keeping slush funds for making questionable and/
or illegal payments to foreign officials to help land certain
business deals.
For these 20 years, the FCPA has succeeded at curbing U.S.
corporate bribery of foreign officials by establishing
extensive bookkeeping requirements to ensure transparency and
by criminalizing the bribery of foreign officials.
Now, these very important principles do not simply define
an American sense of morality in business. I think they
actually strengthen America's trade policy, foster a faith in
American democracy, and protect our interests in requiring an
open environment for U.S. investment.
Certainly these are principles and guidelines that will
serve everyone's best interest, and as such are well worth
promoting worldwide.
But there has been, as I have been told by a number of
business people, a price for taking such a high ethical road.
U.S. companies that are trying to pursue opportunities in the
global marketplace are forced to compete with firms from
countries whose national laws take a more essentially laissez-
faire approach to this issue, and they turn a blind eye to
corruption and graft evident in many business transactions.
Even in some countries--and this is an example that I cite all
the time. In Germany, they even allow companies to take a tax
deduction for bribes paid to foreign officials as a business
expense. My business people in Wisconsin are always a little
horrified when they hear that.
Mr. Chairman, I would call such practices a corporate
welfare of the worst kind. These laws and practices by our
closest trading partners clearly put our businesses at a
disadvantage. I have heard from more than one Wisconsin company
about international contracts lost as a result of some non-
American company paying a bribe to a foreign official. These
lost contracts represent lost employment and revenue
opportunities for my State, as I am sure they do in other
States. A 1997 report by the Trade Promotion Coordinating
Committee estimates that U.S. firms lost at least 50
international commercial contracts valued at more than $15
billion in a single year.
But fortunately, with the signing of the OECD convention
last December, the rest of the industrialized world, along with
several key lesser developed countries, is finally beginning to
follow America's lead. What this convention does is initiate
several significant steps to raise the standards of our major
trading partners to the level established by the FCPA.
Mr. Chairman, I have longer remarks that I do not want to
trouble you with except to say that this is a subject that I
have been greatly interested in and have introduced legislation
on for years. So, I am just delighted that not only that the
administration is working hard on this, but I also want to
thank the chairman of the full committee and the chairman today
for giving this quick consideration. I think it is a very
important treaty for the business people in our country.
Thank you, Mr. Chairman.
Senator Hagel. Senator Sarbanes?
Senator Sarbanes. Mr. Chairman, could I just have a
unanimous consent to insert a Washington Post editorial, a
Treaty Against Bribes, discussing this convention, and also an
article in the Wall Street Journal by Secretary Daley, the
Battle Against Bribery, in the record?
Senator Hagel. Without objection, so ordered.
[The Washington Post and Wall Street Journal articles
follow:]
A TREATY AGAINST BRIBES
[Printed in the Washington Post, 5/10/98]
How's this for a level playing field? U.S. law bans the bribery of
foreign officials to win business contracts; French law makes such
bribes tax-deductible. For years, the United States has been urging
other industrialized countries to erase this discrepancy--to outlaw
foreign bribery, as has U.S. law for more than two decades. Now
Congress has a chance to help make that happen.
The instrument at hand is the Organization for Economic Cooperation
and Development's Convention on Combating Bribery of Foreign Public
Officials, which 33 leading developed nations signed last December.
Once the treaty goes into effect, every participating country will
criminalize bribery of foreign officials. in some ways, the treaty
doesn't go as far as the U.S. negotiators would have liked. It doesn't
ban payments to political parties or candidates, for example. But it's
a huge first step, and other nations have agreed to discuss extending
its reach once this treaty goes into effect.
The United Sates has nothing to lose by ratifying the covenant; it
essentially confirms U.S. law. Exactly 10 years ago Congress instructed
the executive branch to seek just such a treaty. The only question is
whether the Senate will find time to vote on it, and whether both
houses of Congress will find time to pass the necessary implementing
legislation before everyone goes home to campaign. But timing is
urgent. The signatories promised maximum effort to ratify by the end of
this year. Any delay here would only give other countries an excuse to
deviate from that schedule.
Corruption exists in all countries, and no doubt always will. But
in developing nations, and those making a transition from communism to
free market, corruption can have an especially debilitating effect.
Such countries often lack established courts and law enforcement
institutions to keep bribery in check. When ruling elites skim huge
portions of incoming investment, they impoverish everyone else while
fostering cynicism and a sense that anyone who is honest is also a sap.
It's important that all developed countries recognize, as the United
States has since 1997, that they have a responsibility to help fight
such destructive dishonesty. And once the treaty comes into force,
European bribes will not only no longer be legal--they won't be tax-
deductibe, either. That's one more reason for Congress to act fast.
______
The Battle Against Bribery
By William M. Daley
[Printed in the Wall Street Journal, 12/17/97]
Today, representatives of 34 countries will meet in Paris at the
Organization for Economic Cooperation and Development to sign a binding
agreement outlawing bribery of foreign public officials. This is a
watershed accord, designed to ensure that price and quality--not
greased palms--will determine who gains and who loses in markets
abroad.
The antibribery convention calls for strict penalties for bribery
and tight accounting procedures to make it harder to hide illegal
payments. Bribe givers will also face charges for money laundering. The
bottom line will be fines, loss of business and even imprisonment. We
will need to submit the convention to Congress by April with a goal of
ratification by the end of the year.
To enforce this agreement governments will offer mutual legal
assistance; and there will be rigorous monitoring in the OECD. Based on
this agreement, France has already announced the end of tax
deductibility for bribes. But we must make sure that our trading
partners uphold their commitments.
U.S. firms and workers will clearly benefit from this new accord.
Since mid-1994 foreign firms have used bribery to win approximately 180
commercial contracts valued at nearly $80 billion. We estimate that
over the past year American companies lost at least 50 of these
contracts, valued at more than $15 billion. And since many of these
contracts were for groundbreaking projects--the kind that produce
exports for years to come--the ultimate cost could be much higher.
As important as this agreement is, we must recognize that it only
places severe penalties on those companies and individuals who offer
bribes. It does not address the government officials who seek and
accept bribes. We must now aggressively urge countries to reform their
government procurement practices.
Greater openness and fairness in government procurement will
significantly increase opportunities for U.S. business in the global
procurement market, which has been estimated to be worth more than $3
trillion. We must begin by encouraging nondiscriminatory, timely and
transparent procedures in government procurement. There is a World
Trade Organization agreement covering government procurement, but only
25 countries have signed it. Our goal is for all countries to do so.
We must recognize the challenges that still lie ahead. We have a
new WTO working group that will push countries to adopt more open and
transparent rules. Work is also progressing in the Asia Pacific
Economic Cooperation forum and the Free Trade in the Americas Agreement
process. The U.S., like-minded countries, and the business community
must press for world-wide adoption of these procurement reforms as we
build a sound global trading system.
Senator Hagel. Thank you, Senator.
Now, Mr. Secretary, welcome again and glad you are here. We
have two panels this morning. Under Secretary of State
Eizenstat will be first to present testimony, and the second
panel is Mr. Fritz F. Heimann, Chairman, United States
Transparency International. So, if you would proceed, Mr.
Secretary.
STATEMENT OF HON. STUART E. EIZENSTAT, UNDER SECRETARY OF STATE
FOR ECONOMIC, BUSINESS AND AGRICULTURAL AFFAIRS
Mr. Eizenstat. Thank you very much, Mr. Chairman, Senators.
I would like to express particular appreciation to Chairman
Helms for scheduling this hearing so promptly after we have
sent the convention and the implementing legislation to the
Senate. It is important the United States lead in the
ratification and implementation of this convention, just as we
did in the negotiation.
Ten years ago the U.S. Congress amended our Foreign Corrupt
Practices Act and, in so doing, called upon the executive
branch to negotiate with our major trading partners in the OECD
an international agreement prohibiting bribery of foreign
public officials in international business transactions. This,
by the way, had been a goal of successive U.S. administrations
since the passage of the 1977 Foreign Corrupt Practices Act, in
which I am pleased to say I played a personal role when I was
serving in the White House during that period in helping to
draft and conceptualize.
The goal has been to internationalize the principles of the
Foreign Corrupt Practices Act so that other countries would
rise to our high standard and so that U.S. businesses would not
be put at a competitive disadvantage in doing business abroad,
as we were criminalizing activity by our business people but
other countries were not.
The U.S. Government, with the support of the business
community and Members of Congress, both Republican and
Democrat, had been working steadily for years to convince our
trading partners to criminalize the bribery of foreign public
officials, and I am very pleased that today I can say we have
met this goal. We are strengthening the rule of law in
international business and will be providing for a more level
playing field for our businesses operating abroad and trying to
export.
We were right to enact the Foreign Corrupt Practices Act 20
years ago, and we have been right and Congress was right to ask
us 10 years ago to press harder for our trade competitors to
enact similar prohibitions. We have succeeded with the OECD
convention and there has been really a sea change in attitude.
I think Senator Sarbanes indicated this. Thirty-three nations
have agreed to enact criminal laws which will closely follow
the prohibitions found in our statute. This is a major
achievement for the rule of law.
Bribery damages economic development and it hinders the
growth of democracy in developing countries. It hurts U.S.
exporters and suppliers in every State and in every district in
the United States, and it impedes U.S. international trade. The
U.S. Government is aware of allegations of bribery by foreign
firms in the last year alone affecting international contracts
worth almost $30 billion, all of which would not be prohibited
by criminal laws in the home jurisdictions.
Governments that signed the convention have now pledged to
seek its approval and enactment of implementing legislation by
the end of this year. It is the product of strong American
leadership and bipartisan effort by the Congress as well, and
therefore early U.S. action is essential to spurring our major
competitors. That is again why I am particularly appreciative
that Chairman Helms would have scheduled this hearing so
promptly.
Permit me to briefly highlight what this convention does.
It obligates the parties to criminalize bribery of foreign
public officials, including officials in all branches of a
foreign government, whether appointed or elected. It includes
payments to officials of public agencies, of public
enterprises, and of public international organizations as well.
It would cover government controlled parastatals so that
publicly owned, foreign owned airlines and utilities and state
telecommunications companies, which are increasingly important
in public procurement, would be covered as well and only those
operating on a purely commercial basis would be exempt.
The parties must also apply effective, proportionate, and
dissuasive criminal penalties to those who bribe foreign public
officials. If a country's legal system lacks the concept of
criminal corporate liability, it must then provide for
equivalent non-criminal sanctions, including monetary
penalties.
The convention also requires that parties be able to seize
or confiscate both the bribe and the proceeds of the bribe, the
net profits resulting from the illegal transaction, or to
impose equivalent fines.
The convention has strong provisions to prohibit accounting
omissions and falsification, and importantly to provide mutual
legal assistance and even extradition to enforce each other's
laws. These mutual assistance provisions are particularly
important because they will enhance foreign governments in
their efforts to enforce alleged bribery, but they will also
improve our own enforcement of our Foreign Corrupt Practices
Act because we will be getting more cooperation from foreign
governments in both extradition and providing evidence that we
can use in our own prosecutions.
While the convention does not directly cover bribery of
foreign political parties, party officials and candidates for
public office, OECD members have agreed to discuss these issues
on a priority basis in the anti-bribery working group of the
OECD, which negotiated this convention, and to consider
proposals to cover such political officials by the May 1999
OECD annual ministerial. However, the convention will cover
business related bribes to foreign public officials made
through political parties, made through party officials, made
through candidates, as well as those bribes that corrupt
foreign public officials directed to them.
The greatest impact of our Foreign Corrupt Practices Act
over the years has been achieved through the business
community's own response to the law, their institution of
meaningful internal corporate controls, effective internal and
external auditing, and the adoption of codes of conduct. We
would expect to see a similar dynamic if this convention is
ratified in other OECD countries.
The convention also provides us for the first time with a
mechanism to monitor through regular peer review both the
quality of the legislation enacted by other nations and the
effectiveness of their enforcement of their legislation.
Regular comprehensive monitoring will provide us with the
ability to determine whether other nations actually do what
they have agreed to do.
I expect that soon after the convention enters into force,
we will begin to see a sharp curtailment in the practice of
bribery of foreign public officials in major international
business transactions. For the first time, our competitors will
have to weigh the risks of bribery against the supposed
benefits.
This convention does not stand in isolation. It is the
centerpiece of a comprehensive U.S. Government strategy to
combat bribery and corruption abroad. In our own hemisphere, we
successfully concluded the Inter-American Convention Against
Corruption, which has recently been submitted to the Senate for
its advice and consent. It is my hope that an early hearing can
be held at the convenience of this committee on this convention
as well. Three countries in Latin America were among the five
non-OECD members that signed the OECD Anti-Bribery Convention.
We are also working with the International Monetary Fund
and multilateral development banks to encourage those
institutions to help countries promote good governments and the
rule of law.
In the OECD as well, we are pressing our partners that
allow tax deductibility, as Senator Feingold mentioned, an
outrageous situation, to deal with this situation and eliminate
this preferential treatment. Progress is already being made in
countries like Denmark, Norway, and Portugal, and in others.
This process on tax deductibility will be accelerated with the
conclusion of the OECD convention and we hope that this will be
the next step taken.
Since the convention follows our own Foreign Corrupt
Practices Act very closely, we will need, Mr. Chairman, to make
far fewer changes to our domestic law than will other countries
who have no domestic criminal laws in this area themselves.
We have tailored for our few proposed amendments our
provisions so that our law will have a scope similar to what we
expect our major trading partners to achieve as they enact
their laws. We have been careful not to put U.S. firms at a
competitive disadvantage. My written statement outlines the
changes in more detail that we have proposed to the Foreign
Corrupt Practices Act as implementing legislation.
We and all signatories to the convention agreed to seek
approval and enactment of implementing legislation by the end
of 1998. We believe that it is essential that the U.S. meet
this schedule. If we do not, other countries will use our delay
as an excuse to avoid or delay their own implementation. The
sooner we act in ratifying the convention and enacting our
implementing legislation, the sooner others will act. That
will, therefore, level the playing field on which our companies
must compete to obtain business overseas.
The business community in the United States strongly
supports our efforts to ratify the convention as soon as
possible.
In conclusion, the successful culmination and conclusion of
this OECD Anti-Bribery Convention has been a genuine bipartisan
effort spurred by Congress over the past 10 years, and one that
several administrations have given priority to.
I welcome the committee's interest in this important issue
and I urge you to take action to approve the OECD convention
and to ensure that the benefits of the convention are realized
rapidly so that our own companies can at last play on a more
level playing field.
Thank you again and I am pleased to answer any and all
questions.
[The prepared statement of Mr. Eizenstat follows:]
Prepared Statement of Stuart E. Eizenstat
Mr. Chairman and Members of the Committee:
Ten years ago this summer, the United States Congress passed the
Omnibus Trade Act which, in part, amended our Foreign Corrupt Practices
Act. The amendments were a reaffirmation of the strong support of the
Congress for effective anti-bribery legislation.
As part of this action, the Congress called on the executive branch
to negotiate--with our major trading partners in the Organization for
Economic Cooperation and Development--an international agreement
prohibiting bribery of foreign public officials in international
business transactions.
Such action has been a goal of successive U.S. administrations
since passage of the 1977 U.S. Foreign Corrupt Practices Act. As then-
President Carter's chief domestic advisor, I was involved in
development and passage of the FCPA, and can attest to the high
priority attached to getting a commitment from the world's largest
industrial countries that they adopt strict anti-bribery laws of their
own. The goal was to internationalize the principles in the FCPA so
that other countries would rise to our high standards and so that U.S.
businesses would not be at a competitive disadvantage doing business
abroad.
The U.S. Government, with the support of the business community and
members of Congress, both Republicans and Democrats, has been working
steadily for years to convince our trading partners to criminalize the
bribery of foreign public officials. I am very pleased to inform you
today that we have met this goal. And we have done so in a manner which
will provide for freer and fairer international competition, will
strengthen the rule of law in international business and will provide
for a more level playing field for U.S. businesses overseas.
On December 17 of last year, on behalf of the United States,
Secretary of State Madeleine Albright signed the OECD Convention on
Combating Bribery of Foreign Public Officials in International Business
Transactions.
We were right to enact the Foreign Corrupt Practices Act over 20
years ago. And we have been right to press hard for our trade
competitors to enact similar prohibitions. We have succeeded with the
OECD Convention. Thirty-three nations have agreed to enact criminal
laws which will closely follow the prohibitions found in our statute.
This is a major achievement for the rule of law.
This Convention obligates the world's largest economies to outlaw
the bribery of officials of other countries in international business
transactions. This is an important issue for the United States, U.S.
businesses and workers.
Let me say, Mr. Chairman, this Convention is very much in our
national interest. Bribery damages economic development and hinders the
growth of democracy. It hurts U.S. exporters and suppliers--in every
state and district in the U.S.--and impedes international trade. The
U.S. government is aware of allegations of bribery by foreign firms in
the last year affecting international contracts worth almost $30
billion, which is not currently prohibited by criminal laws in their
home jurisdictions.
Governments that signed the Convention have pledged to seek its
approval, and enactment of implementing legislation, by the end of this
year. The Convention is the product of strong American leadership, and
early U.S. action is essential to spurring on our major competitors,
whose implementation efforts will directly benefit our international
interests and U.S. firms and their employees. I am confident that the
OECD Convention will enter into force promptly and that the Parties
will enact strong laws and enforce them effectively.
I would to like to express my thanks, Mr. Chairman, for scheduling
this hearing so promptly. It is important that we lead in the
ratification and implementation of this Convention, just as we did in
its negotiation.
THE OECD CONVENTION
Let me briefly highlight for you what this Convention does:
<bullet> The Convention obligates the Parties to criminalize bribery
of foreign public officials, including officials in all
branches of government, whether appointed or elected. This
prohibition includes payments to officials of public agencies,
public enterprises, and public international organizations.
This, therefore, would cover government-controlled parastatals,
such as airlines, utilities, state telecommunications
companies, which are increasing important in public
procurement. Only those operating on a purely commercial basis
would be exempt.
<bullet> The Parties must apply ``effective, proportionate and
dissuasive criminal penalties'' to those who bribe foreign
public officials. If a country's legal system lacks the concept
of criminal corporate liability, it must provide for equivalent
non-criminal sanctions, including monetary penalties.
<bullet> The Convention requires that parties be able to seize or
confiscate both the bribe and the bribe proceeds--the net
profits that result from the illegal transaction--or to impose
equivalent fines so as to provide a powerful disincentive to
bribery. Under our law, substantial fines have had significant
impact on corporate compliance.
<bullet> The Convention has strong provisions to prohibit accounting
omissions and falsification, and to provide for mutual legal
assistance and extradition. These mutual legal assistance
provisions, in particular, will greatly enhance cooperation
with foreign governments in cases of alleged bribery, improving
both our own enforcement of the FCPA and foreign governments'
enforcement of anti-bribery laws.
The Convention will cover business-related bribes to foreign public
officials made through political parties, party officials, and
candidates, as well as those bribes that corrupt foreign public
officials direct to them.
While the Convention does not cover directly bribery of foreign
polticial parties, party officials, and candidates for political
office, OECD members have agreed to discuss these issues on a priority
basis in the OECD's anti-bribery working group, which negotiated the
Convention, and to consider proposals to address these issues by the
May 1999 OECD annual Ministerial meeting.
WHAT TO EXPECT FROM OUR PARTNERS
The greatest impact of the FCPA has been achieved through
enforcement measures and through the business community's response to
the law: the institution of meaningful internal corporate controls,
effective internal and external auditing, and codes of conduct
requiring compliance not only with the FCPA, but also with other
federal criminal laws.
We would expect to see a similar dynamic in other OECD countries.
The OECD Convention requirements, which closely follow the FCPA,
represent a very high standard. As our OECD partners enact effective
criminal and civil laws to fully implement those requirements, their
business communities will need to take appropriate steps to comply.
The Convention also provides us with a mechanism to monitor,
through regular peer review, both the quality of the legislation
enacted by the other nations and the effectiveness of their enforcement
of their legislation. We expect this review mechanism to be modeled
after a highly successful one developed by the Financial Action Task
Force on Money Laundering. Regular, comprehensive monitoring will
provide us with the ability to determine whether other nations actually
do what they have agreed to do to prohibit their nationals and their
corporations from bribing to obtain business from foreign governments.
SEVERAL YEARS HENCE:
To be specific, what should we expect to see over the next several
years?
I expect that within the next year we will see ratification of the
OECD Convention by a majority of the OECD nations. Approval by the
U.S., Germany, France and Japan, by the target date of December 31,
1998, is key to early and effective implementation. Most ratifying
nations are expected to enact their implementing criminal and civil
legislation along with or immediately following ratification.
Over the next two years we will see the institution of regular,
comprehensive reviews of the adequacy of both implementing legislation
and enforcement efforts. We also should begin to see cases prosecuted
by Signatories to the Convention.
But of much greater significance, I expect that soon after the
Convention enters into force--and effective criminal prohibitions are
enacted into law in the ratifying nations--we will begin to see a sharp
curtailment in the practice of bribery of foreign public officials in
major international business transactions.
The demand for such bribery in some cases will still exist, but the
risks for OECD companies that are tempted to acquiesce in the payment
of bribes will be very substantial. For the first time our competitors
in the OECD countries will have to weigh those risks against the
supposed benefits of bribery. When this occurs, I am confident that our
companies will face a more level playing field as they compete for
international business on a fair basis.
RELATED ANTI-CORRUPTION INITIATIVES
The successful conclusion of the OECD Anti-Bribery Convention has
not occurred in a vacuum. It is indicative of a changing international
environment, where there is much more willingness than in the past to
address directly the problem of international corruption.
The Convention is the centerpiece of a comprehensive U.S.
government strategy to combat bribery and corruption. We are, for
example, working with the International Monetary Fund and the
multilateral development banks to focus on the debilitating effects of
corruption on economic stability and development, and to encourage
those institutions to help countries promote good governance.
In this Hemisphere, we successfully concluded the Inter-American
Convention Against Corruption, which has recently been submitted to the
U.S. Senate for its advice and consent to ratification. It is my hope
that at an early time convenient for the Committee that a hearing on
this Convention will be scheduled--and to which we would be invited to
testify. Three countries in Latin America--Argentina, Brazil and
Chile--were among the five non-OECD members that signed the OECD Anti-
Bribery Convention. The other two countries are Bulgaria and the Slovak
Republic.
We also are working in the World Trade Organization and in regional
fora in Asia and Latin America to encourage increased transparency in
government procurement, the major arena for this type of foreign
commercial bribery.
In the OECD as well, we are pressing our partners that allow the
tax deductibility of bribes as business expenses to eliminate this
preferential treatment. Since a 1996 Recommendation which called for
such action, Denmark, Norway and Portugal have completed the necessary
legislative action, and nine of ten remaining countries have begun the
process of changing their laws so as to deny the tax deductibility of
bribes. This process has accelerated with the conclusion of the OECD
Convention.
IMPLEMENTING LEGISLATION
Since the Convention follows our FCPA closely, we have submitted to
Congress only those amendments designed to bring our law into full
compliance with its obligations and to implement the Convention.
We have tailored our proposed amendments so that our law will have
a scope similar to that we expect our major trading partners to achieve
as they enact their own laws. We have been careful not to put U.S.
firms at a disadvantage.
First, the FCPA currently criminalizes payments made to influence
any decision of a foreign official or to induce that official to do or
omit to do any act, in order to obtain or retain business. An amendment
will clarify that the scope of the FCPA includes payments made to
secure ``any improper advantage'', the language used in the OECD
Convention, in order to obtain or retain business.
Second, the OECD Convention requires parties to cover prohibited
acts by ``any person''. The current FCPA covers only issuers with
securities registered with the Securities and Exchange Commission and
``domestic concerns''. An amendment will expand the scope of the FPCA
to cover acts prohibited by the Convention of persons other than
issuers or domestic concerns (i.e., all foreign natural and legal
persons), committed while in the territory of the United States,
regardless of whether the mails or a means or instrumentality of
interstate commerce are used, in furtherance of the prohibited acts.
Third, the OECD Convention calls on parties with jurisdiction to
prosecute their nationals for offenses committed abroad to assert
nationality jurisdiction over the bribery of foreign public officials,
consistent with national legal and constitutional principles.
Accordingly, an amendment will provide for jurisdiction over the acts
of U.S. businesses and nationals, in furtherance of unlawful payments,
that take place wholly outside the United States.
Fourth, the OECD Convention includes officials of international
agencies within the definition of foreign public official. Accordingly,
an amendment will expand the FCPA definition of foreign official to
include officials of public international organizations.
Finally, under the current FCPA, non-U.S. citizen employees and
agents of issuers and domestic concerns are subject only to civil,
rather than criminal, penalties. A proposed amendment to the penalty
sections relating to issuers and domestic concerns will ensure that
penalties for non-U.S. citizen employees and agents of issuers and
domestic concerns accord with those of U.S. citizen employees and
agents.
TIMING
We and all Signatories to the Convention agreed to seek approval of
the Convention and the enactment of implementing legislation by the end
of 1998.
We believe that it is essential that the United States meet this
schedule. If we do not, other countries will use our delay as an excuse
to avoid or delay their own implementation.
Certainly, we all want U.S. firms and their employees to realize
the benefits of this Convention as soon as possible. The sooner we act
in ratifying the Convention and enacting out implementing legislation,
the sooner others will act, thereby leveling the playing field on which
our companies must compete to obtain business overseas.
The business community strongly supports our efforts to ratify the
Convention as soon as possible. The U.S. Council for International
Business, the National Association of Manufacturers, the National
Foreign Trade Council and other business groups have publicly endorsed
the Convention. We have consulted closely with interested non-
governmental groups, such as Transparency International/USA, whose
Chairman, Fritz Heimann, is also scheduled to testify here today.
CONCLUSION
Mr. Chairman, and members of the Committee,
The successful conclusion of the OECD Anti-Bribery Convention has
been a bipartisan effort, with substantial actions in pursuit of a
common goal having been taken by the Congress and Administrations over
the past 10 years. Those of us here today, as well as our predecessors,
share in the credit for this accomplishment.
I welcome the Committee's interest in this important issue and I
urge you to take action--to approve the OECD Convention and to ensure
that the benefits of the Convention are realized rapidly.
Senator Hagel. Mr. Secretary, thank you.
Why do we not start with a 5-minute round of questions and
see where we go.
Mr. Secretary, reading from a recent Wall Street Journal
article which documents in some detail the corruption and
bribery, the article talks about corruption and bribes have
been getting worse in recent years, especially given recession,
high unemployment, and other economic problems in Europe.
European competitors look to overseas work to make up the
shortfall of business at home, according to the story, and much
of that work is in the form of huge infrastructure projects in
the developing world where poorly paid officials decide who
gets the business.
The story goes on to say in some cases bribes are used to
pay off local officials who control how foreign aid money is
spent on major projects. According to the Wall Street Journal--
same story--in the 1990's bribery generally ranges from 10 to
15 percent of the contract--you know that--up from, according
to this story, 5 percent previously.
Now, a couple of questions. Which European countries'
corporations spend the most annually on bribes?
Mr. Eizenstat. Well, we did a study when I was Under
Secretary of Commerce, to which actually Senator Feingold
referred, when we tried to quantify the amount of bribery which
occurred. It is quite widespread. I think it is best not in
public session to try to finger particular companies, but it is
a very widespread practice throughout Europe and one for which
there are very few countries that have any effective
enforcement.
Because it is so pervasive, it is not something that could
be dealt with other than through a multilateral agreement and
that is why this is so important.
Senator Hagel. Mr. Secretary, would you provide for the
record some more elaboration on that in written form?
Mr. Eizenstat. We will attempt to give you as many details
as we can, and if you wish to have a briefing in closed
session, we can go into more detail.
Senator Hagel. Thank you.
Following along this line of general questions regarding
European companies, how serious do you think the Europeans are,
Mr. Secretary, about having to forego this business practice
and changing their ways?
Mr. Eizenstat. Mr. Chairman, I frankly would say that 5
years ago no one would have believed that this convention would
have been possible because of the prevalence of the activities
by so many European firms.
Senator Sarbanes alluded to this and I think that there has
indeed been a sea change, and the sea change has occurred
because many of the corporations in Europe themselves
complained about the huge costs of trying to acquire these
contracts, the shakedowns that occur, the unsavory activities
through which they are required to go, and the fact that the
United States had a very positive model.
So, I think they are very serious. This is not being done
purely out of a non-pecuniary motive. They I think increasingly
feel that it is important to live up to high moral standards,
but their corporations are also telling them this has become a
very high cost of doing business to get major contracts and one
they want to avoid.
Senator Hagel. Mr. Secretary, like the U.S. Foreign Corrupt
Practices Act, I understand this treaty permits facilitation
payments. Would a 5 percent commission to a local government
official constitute a facilitation payment?
Mr. Eizenstat. Well, it would depend on the particular
factual situation. Even under our Foreign Corrupt Practices
Act, commissions obviously can be paid in appropriate
circumstances to people who facilitate the acquisition of
contracts. One has to look on a case-by-case basis to determine
that.
Senator Hagel. I understand a German official stated
recently that German companies spend an estimated $5.63 billion
a year on bribes to foreign officials, most of it added on top
of the contract price and then written off on their taxes. If
this treaty is implemented, do you believe these kinds of
bribes will be, can be eliminated?
Mr. Eizenstat. Absolutely. They will be and they can be and
I think that there will be very effective enforcement. I
believe that almost all of the major European countries will
enact penalties of a criminal nature and that there will be
effective enforcement, again not because of altruism alone, but
because I think increasingly their corporations see it in their
business interest to do so. So, we have every confidence that
there will be effective enforcement.
Senator Hagel. What about, for example, skirting around the
edges on this with political parties, bosses of political
parties? My understanding is the treaty does not prohibit
bribes to political parties?
Mr. Eizenstat. We tried very hard to have political parties
covered, and in fact when I was Ambassador to the European
Union, we had a situation involving an alleged bribe to the
Socialist Party of Belgium that typified the problem. While we
did not succeed in fully covering political parties, we made a
real start.
First, as I mentioned, we have a commitment that this issue
will be taken up in the spring 1999 session, and we hope that
this will be addressed in a serious way.
Second, the convention does make a real start in covering
political party officials in the following ways. It would
prohibit bribes involving political parties and party officials
in the following circumstances: When the party or official is
used as an intermediary for a bribe to a foreign public
official; when corrupt foreign public officials direct business
related bribes to political parties, which is often the case--
they will say, do not pay me, pay my party--and in one-party
systems where political parties are, in effect, the government
and party officials in effect carry out public functions. In
all these situations, the political parties would be covered.
So, we made a real down payment, but we do believe that this
ought to be the next effort to go even a step further.
Senator Hagel. Mr. Secretary, thank you. Senator Sarbanes.
Senator Sarbanes. Thank you, Mr. Chairman. Mr. Chairman, I
have a letter that was sent to me by the Business Roundtable,
signed by 35 of our leading and major corporations, which I
would like to include in the record as well.
Senator Hagel. It will be.
[The letter of the Business Roundtable follows:]
May 28, 1998
The Hon. Paul S. Sarbanes
United States Senate
309 Hart Senate Office Building
Washington, DC 20510
Dear Senator Sarbanes:
We are writing to express our support for the speedy ratification
and implementation of the Organization for Economic Cooperation and
Development (OECD) Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions that the
Administration has just submitted to the Congress.
The OECD Convention is a major victory for the United States in its
battle against international corruption and bribery. It creates an
international antibribery system that obligates signatory countries to
adopt domestic laws to combat foreign bribery. Since the Foreign
Corrupt Practices Act (FCPA) was adopted in 1977, the United States has
tried to persuade our major trading partners to enact comparable laws.
In the 1988 Omnibus Trade Act, the Congress directed the President to
negotiate an international agreement in the OECD on the prohibition of
overseas bribes. After years of negotiation, the United States has
succeeded in getting thirty-three other countries (all the OBCD members
and five non-members) to join the United States in the Convention.
The Congress, current and past Administrations, and the private
sector have made their fight against international bribery and
corruption a priority because international corruption undermines
important U.S. goals of (1) achieving a level playing field for those
U.S. companies and their workers that compete overseas, (2) fostering
economic development and trade liberalization, and (3) promoting
democracy and democratic institutions. The Department of Commerce has
estimated that between 1994 and 1996, there were at least 100 cases of
foreign firms using bribery to undercut U.S. firms' efforts to win
international contracts, costing our companies over $45 billion. The
OECD Convention is designed to eliminate these trade distorting
activities and make foreign bribery a crime in major trading countries.
Speedy ratification and implementation of the OECD Convention by
the Untied States is, however, an absolute imperative in order for the
Convention to succeed. Some of the other parties are not as committed
to the Convention as the United States and are likely to use a delay in
U.S. ratification to undermine it. Speedy implementation of the OECD
Convention is also necessary to show the other parties that the United
States takes its obligations under the Convention seriously and expects
other parties to do the same. Since the Convention's effectiveness
depends on the adoption of international anti bribery laws by the other
parties, implementation by the United States is necessary to lead the
way, substantively and politically, for implementation of the
Convention by other parties.
Enclosed, for your information, is background material on the OECD
Convention and a summary of the amendments necessary to bring the FCPA
into compliance with the OECD Convention.
We are committed to working with you to help protect U.S.
businesses and workers from unfair and corrupt foreign
competitionthrough the ratification and implementation of the OECD Anti
Bribery Convention by the Congress this year.
Sincerely
Peter S. Janson
President & CEO
ABB Inc.
Lawrence A. Bossidy
Chairman & CEO
AlliedSignal, Inc.
William J. Hudson Jr.
President & CEO
AMP Incorporated
Curtis H. Barnette
Chairman & CEO
Bethlehem Steel Corporation
Donald V. Fites
Chariman & CEO
Caterpillar Inc.
Robert J. Eaton
Chairman, President & CEO
Chrysler Corporation
Robert B. Palmer
Chairman, President & CEO
Digital Equipment Corporation
Charles O. Holliday
President & CEO
DuPont Company
Richard J. Swift
Chairman, President & CEO
Foster Wheeler Corporation
Michael R. Bonsignore
Chairman & CEO
Honeywell, Inc
D.T. Engen
Chairman, President & CEO
ITT Industries, Inc.
Larry D. Yost
Chairman & CEO
Mentor Automotive, Inc.
Dennis J. Picard
Chairman & CEO
Raytheon Company
Dana G. Mead
Chairman & CEO
Tenneco
James F. Hardymon
Chairman & CEO
Textron Incorporated
Tony L. White
Chairman & CEO
The Perkin-Elmer Corporation
James P. Kelly
Chairman & CEO
United Parcel Service of America
John A. Luke Jr.
Chairman & CEO
Westvaco
Harold A. Wagner
Chairman, President & CEO
Air Products and Chemicals, Inc.
Maurice R. Greenberg
Chairman & CEO
American International Group, Inc.
C. Michael Armstrong
Chairman & CEO
AT&T
Ernest S. Micek
Chairman, President & CEO
Cargill, Inc.
Michael H. Jordan
Chairman & CEO
CBS Corporation
John W. Snow
Chairman, President & CEO
CSX Corporation
William E. Bradford
Chairman & CEO
Dresser Industries, Inc.
George M. C. Fisher
Chairman & CEO
Eastman Kodak Company
John F. Welch Jr.
Chairman & CEO
General Electric Company
James E. Perrella
Chairman, President & CEO
Ingersoll-Rand Company
Raymond V. Gilmartin
Chairman, President & CEO
Merck & Company, Inc.
W. Wayne Allen
Chairman & CEO
Phillips Petroleum Company
D. H. Davis Jr.
Chairman & CEO
Rockwell International Corporation
Thomas J. Engibous
President & CEO
Texas Instruments Incorporated
Philip M. Condit
Chairman, President & CEO
The Boeing Company
Joseph T. Gorman
Chairman & CEO
TRW Inc.
George David
Chairman, President & CEO
United Technologies Corporation
Enclosures
______
WHAT IS THE OECD ANTIBRIBERY CONVENTION?
The OECD Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions creates an
international anti bribery system that obligates signatory countries to
enact domestic laws to combat foreign bribery.
<bullet> The United States, which has had such a law since 1977, will
no longer be alone once the Convention is ratified and
implemented by the parties.
<bullet> Thirty-three countries have joined this historic Convention.
Those countries included the 29 OECD members (United States,
U.K., Japan, Canada, France, Germany, Italy, Korea, Mexico,
Switzerland, Australia, Austria, Belgium, Czech Republic,
Denmark, Finland, Greece, Hungary, Iceland, Ireland,
Luxembourg, The Netherlands, New Zealand, Norway, Poland,
Portugal, Spain, Sweden, Turkey) and five other nations
(Argentina, Brazil, Bulgaria, Chile and the Slovak Republic).
<bullet> The OECD Convention will level the international trade
playing field since our major trading partners are now
obligated to enact foreign anti bribery laws.
Similarly to the Foreign Corrupt Practices Act (``FCPA''), the OECD
Convention-
<bullet> provides that parties shall make it a crime ``for any person
intentionally to offer, promise or give any undue pecuniary or
other advantage ... to a foreign public official ... in order
to obtain or retain business or other improper advantage in the
conduct of international business;''
<bullet> applies to corrupt payments to office-holders, legislators,
and personnel of government controlled companies (so-called
``parastatals'');
<bullet> recognizes an exemption for small ``facilitating payments;''
and
<bullet> requires parties to enact accounting requirements for the
purpose of preventing false or misleading accounting practices
that can be used to bribe or to hide such bribery.
In order to ensure full and effective implementation, the OECD
Convention also requires that the parties to the OECD Convention-
<bullet> review their current basis for jurisdiction and take
remedial steps if they are not effective in the fight against
bribery;
<bullet> consult when more than one party asserts jurisdiction;
<bullet> provide legal assistance to each other relating to
investigations and proceedings and make bribery of foreign
officials an extraditable offense; and
<bullet> cooperate in a follow-up program in the OECD to monitor
compliance with the Convention
The parties to the OECD Convention have already agreed to an
accelerated work plan to address several outstanding issues related to
the Convention, including acts of bribery relating to foreign political
parties, and coverage of foreign subsidiaries.
______
THE OECD ANTIBRIBERY CONVENTION
SUMMARY OF PROPOSED LEGISLATIVE CHANGES
TO THE FOREIGN CORRUPT PRACTICES ACT
The following five amendments to the Foreign Corrupt Practice Act
(``FCPA'') are needed to implement the recently-signed OECD Convention
on Combating Bribery of Foreign Public Officials it International
Business Transactions:
First an amendment to expand the scope of the FCPA to include
payments made to secure ``an improper advantage.''
(The OECD Convention requires parties to cover payments made to
``obtain or retain business or other improper advantage in the conduct
of international business.'' While the FCPA has been interpreted
broadly to include this, the amendment is necessary to ensure that the
other parties do not doubt U.S. implementation of the Convention.)
Second, an amendment to expand the scope of the FCPA to cover
foreign persons for acts committed while in the United States.
(The OECD convention requires parties to cover prohibited acts by
``any person.'' The FCPA currently covers only issuers, as defined in
the 1934 Securities Exchange Act, and domestic concerns.
Third, an amendment to expand the FCPA definition of foreign
official to include officials of public international organizations.
(The OECD Convention, unlike the current FCPA, includes officials
of international agencies within the definition of foreign public
official.)
Fourth, an amendment to provide for jurisdiction over the acts of
U.S. persons that take place wholly outside the United States.
(The OECD Convention calls on parties to prosecute their nationals
for offenses committed abroad. The FCPA currently covers only issuers
as defined in the 1934 Securities Exchange Act, and domestic concerns
who use the mails or other means of interstate commerce.)
Fifth, an amendment to the FCPA's penalty sections relating to
issuers and domestic concerns to ensure that penalties for non-U.S.
citizen employees and agents of issuers and domestic concern accord
with those of U.S. citizen employees and agents.
Under the current FCPA, non-U.S. citizen employees and agents of
issuers and domestic concerns are subject only to civil, rather than
criminal, penalties.)
This package of amendments will bring the FCPA into conformity with
the OECD Convention and lead the way for implementation of the OECD
Convention by the other parties.
______
THE OECD ANTIBRIBERY CONVENTION A U.S. VICTORY OVER INTERNATIONAL
CORRUPTION
The OECD Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions is a major victory for
the United States in its battle against international bribery and
corruption.
<bullet> Since the Foreign Corrupt Practices Act (``FCPA'') was
adopted in 1977, the United States alone has prohibited foreign
bribery.
<bullet> Without U.S. leadership and perseverance, 33 other countries
would not have joined the OECD Convention on December 17, 1997.
The OECD Convention is the result of bipartisan cooperation and the
collaborative efforts of the Congress, the Executive Branch and the
private sector.
<bullet> In the 1988 Omnibus Trade Act, the Congress directed the
President to negotiate an international agreement in the OECD
on the prohibition of overseas bribes.
The OECD Convention will level the international trade playing
field.
<bullet> The U.S. Department of Commerce estimates that between 1994
and 1996 there have been almost 100 cases of foreign firms
using bribery to undercut U.S. firms' efforts to win
international contracts worth over 45 billion.
Speedy ratification of the OECD Convention is needed to persuade
other parties to ratify the Convention quickly.
<bullet> Some of the other parties are not as committed to the
Convention as the United States and are likely to use a delay
in U.S. ratification to undermine the Convention.
Speedy implementation of the OECD Convention is also necessary to
show the other parties that the United States takes its obligations
under the Convention seriously and expects other parties to do the
same.
<bullet> Since the Convention's effectiveness depends on the adoption
of international antibribery laws by the other parties,
implementation by the United States is necessary to lead the
way, substantively and politically, for implementation of the
Convention by the other parties.
Because the FCPA is already in force in the United States, only
minor amendments are necessary to bring it into line with the OECD
Convention.
<bullet> A summary of proposed legislative changes to the FCPA is
attached.
Senator Sarbanes. I just want to quote briefly one
paragraph of it which says: ``Speedy ratification and
implementation of the OECD Convention by the United States is
an absolute imperative in order for the Convention to succeed.
Some of the other parties are not as committed to the
Convention as the United States and are likely to use a delay
in U.S. ratification to undermine it. Speedy implementation of
the OECD Convention is also necessary to show the other parties
that the United States takes its obligations under the
Convention seriously and expects other parties to do the same.
Since the Convention's effectiveness depends on the adoption of
international anti-bribery laws by the other parties,
implementation by the United States is necessary to lead the
way, substantively and politically, for implementation of the
Convention by other parties.''
Mr. Secretary, you touched on that, but I want to develop
that a little bit because I think we need to sort of do what we
can to sort of break the Congress out of the mode of saying,
well, we will get to it. It is not controversial. It obviously
serves our interests, and at some point we will go ahead and
approve this thing.
I think it is important--well, how important is it--let me
put it to you this way--that we act quickly and promptly and at
the head of the line as an impetus or as a motivation for
others to follow through so we really can get this thing into
place by the end of this year?
Mr. Eizenstat. It is really critically important. Every day
that we delay is another contract lost, another bribe being
paid by a foreign company to get a contract.
The way the entry into force operates is that if we are to
meet this end of 1998 target date, then 5 of the 10 largest
OECD trading partners, which themselves represent 60 percent of
the combined total exports of those 10 countries, have to
deposit their instruments of ratification. If we are to meet
this by the end of 1998 and encourage Japan, France, Germany,
Korea, and others, we have to act and we have to show
leadership. This has, after all, been our baby in a sense. We
have been pushing this for a decade so that we need to show
leadership here.
If we cannot get it done, then the entry into force would
occur in 1999 if any two countries ratify, but that would mean
the delay of a full year. Again, we would have another $15
billion to $30 billion in bribes paid, more contracts lost, and
more jobs at risk in the United States.
Senator Sarbanes. Well, I guess the point I am trying to
get at, it is not only important that we do it by the end of
1998, but we need to do it now, so to speak, so it serves as a
prompting----
Mr. Eizenstat. Exactly. If we do not do it now, then the
other countries will not even come close to meeting the end of
1998. Everyone is looking to us.
Senator Sarbanes. Right.
Mr. Eizenstat. If we do not act, they will delay.
Senator Sarbanes. Now, let me ask this question about the
plans for future expansion. We have got these OECD countries,
which are leading developed economies, but I notice there are a
fair number of fairly large economies around the world that are
not participating in it. Now, they may be somewhat less
developed, but they still are developed countries and
significant players in the international economic scheme.
Will they kind of move into what they perceive a vacuum and
start engaging in these practices in order to gain an
advantage? Or is there a possibility of expanding this to bring
in other such countries?
Mr. Eizenstat. We are going to make a major effort to
expand it, and I believe that the momentum, Senator, which is
being created, this sea change to which I alluded, is occurring
worldwide. If I may just give you some examples. There are
already five non-OECD countries who have agreed to ratify this,
three in Latin American, Brazil, Chile, and Argentina. Bulgaria
and Slovakia have also agreed to do so. We are going to put a
major multilateral effort on to get other major economies, but
the fact that we already have so early on five non-OECD
countries to go with the 29 that we have means that we will be
covering with the 34 countries about 75 percent of all the
trade in the world.
Senator Sarbanes. Well, Mr. Chairman, I see my time is
about to expire. I may not be able to stay for the second panel
to hear Mr. Heimann from U.S. Transparency International. I do
just want to say a word about the work they are doing.
This whole transparency movement worldwide is extremely
important in my judgment. What is happening is we see that this
issue of corruption I think is a looming problem on the
international scene and it undermines governments. It obviously
affects the legitimacy of political actions, and the
Transparency people, not only in this arena but in other arenas
as well, have been doing very good work in trying to develop
ways to attack this. It is really a cancer in the international
body politic, this growing corruption problem and the lack of
legitimate standards.
I will not be here for that panel but I wanted to make that
observation about the work of U.S. Transparency International.
Mr. Eizenstat. Senator, may I just say that we have worked
very closely with Transparency International for years now not
onl