Most international bribes are paid by large companies with the knowledge of their senior managers, according to new figures from the Organisation of Economic Control and Development.

Most international bribes are paid by large companies with the knowledge of their senior managers, according to new figures from the Organisation of Economic Control and Development. The international body has been analysing the cost of foreign bribery and corruption.

The magic 10%

Bribes in the analysed cases equalled 10.9% of the total transaction value on average, and 34.5% of the profits – equal to US$13.8 million per bribe - but this is without doubt the mere tip of the iceberg in view of the complexity and concealed nature of corrupt transactions, according to the OECD. This, although the report did not say it, is similar to money-laundering fees, which typically stand at around 8-12% of total transaction value in drug-dealing and other cartel business.

People generally pay most bribes to obtain contracts from state-owned or state-controlled companies in advanced economies, rather than in the developing world, and most bribe-payers and bribe-takers are from wealthy countries.

The OECD Foreign Bribery Report analyses 427 cases worldwide that involved companies or individuals from the 41 signatory countries to the OECD Anti-Bribery Convention who were involved in bribing foreign public officials. The cases took place between February 1999, when the convention came into force, and June 2014 when the OECD started to collect the figures.

Who bribed whom

Almost two-thirds of cases occurred in just four sectors: extractive (19%); construction (15%); transport and storage (15%); and information and communication (10%).

Bribes were promised, offered or given most frequently to employees of state-owned enterprises (27%), followed by customs officials (11%), health officials (7%) and defence officials (6%). Heads of state and ministers were bribed in only 5% of cases but received 11% of total bribes. In most cases, bribes were paid to obtain public procurement contracts (57%), followed by clearance of customs procedures (12%). 6% of bribes were to gain preferential tax treatment. Said OECD Secretary-General Angel Gurría: “The prevention of business crime should be at the centre of corporate governance.”

The report also reveals that the time needed to conclude cases has increased over time, from around two years on average for cases concluded in 1999 to just over seven today. This may betoken the increasing sophistication of bribers, an increase in the complexity of investigation for law enforcement agencies (perhaps because more of those cases were spread over several countries) or the fact that companies and individuals are less willing to settle than in the past. In 41% of cases management-level employees paid or authorised the bribe, whereas the company CEO was involved in 12% of cases. Intermediaries were involved in 3 out of 4 foreign bribery cases. These intermediaries were agents, such as local sales and marketing agents, distributors and brokers, in 41% of cases. Another 35% of intermediaries were corporate vehicles, such as subsidiary companies, companies located in offshore financial centres or tax havens, or companies established under the beneficial ownership of the public official who received the bribes.

Governments around the world should strengthen sanctions, make settlements public and put more effort into protecting whistle-blowers as part of greater efforts to tackle bribery and corruption, according to the OECD. The overwhelming use of intermediaries also demonstrates the need for more effective due diligence and oversight of corporate compliance programmes, and for company executives to lead by example in 'fighting the good fight' against foreign bribery.

An emotional peroration

At a launch ceremony yesterday, OECD chief Angel Gurria had this to say: "This report is the first major scan of countries' anti-bribery efforts since the convention came into force. The hidden nature of bribery means we don't know how many cases go undetected and therefore unpunished but, without a doubt, I think we have made a start.

"What does the report tell us? It dispels the myth that corruption is confined to developing countries. Corruption occurs everywhere, first of all because it takes two to tango, but also, two-thirds of the bribes covered in the report were paid to officials in countries with medium to very high levels of human development. Officials were bribed from 24 out of the 41 member-countries of the OECD working group on bribery. This is 15 out of the 19 G20 countries - it's the G19 really but G20 sounds better.

"Meanwhile, the time needed to conclude cases has increased from around 2 years on average for cases concluded in '99 to just over 7 years today. This may reflect the increasing sophistication of bribers or the fact that companies and individuals have become less willing to settle.

Companies cannot pose as victims

"The report also reveals that bribery cannot be blamed on rogue employees. It doesn't happen because somebody did something wrong. In over half of the cases studied, senior management including CEOs in many cases were involved in corrupt behaviour or were at least aware of it and tolerated it and in some cases encouraged it. Companies can no longer play the role of victim."

This is likely to be grist to HM Government's mill, believing as it does that all companies are automatically guilty of encouraging the bribery that their employees or representatives promulgate unless they have robust anti-bribery policies that work in place. The Bribery Act 2010 and subsequent (vague) guidance from the Ministry of Justice enforce this view of corporations as guilty until they can demonstrate some evidence of innocence, although the system is not very well thought-out. Gurria went on:

"The same might be said for recipients of bribes. Our report notes that 11% of the total amount of the bribes went to ministers and heads of state, so bribery encompasses all the range. State enterprises were the biggest places for bribes. They are big buyers of things; big utilities, steel companies and mining companies. They account for one-third of all the cases covered by the report. In over half the bribes covered in the report, half were to secure government contracts. Despite this shocking statistic, only 2 out of the 115 companies sanctioned for foreign bribery were ever debarred from national procurement processes. That's right! Only 2 out of 115 that were found to have bribed [people in relation to] to public procurement processes have been prevented from bidding for public contracts again. 2 out of 115! The rest are still at large.

"Our report shows that corruption cases often go un-prosecuted. In 75% of cases sanctions were imposed by way of settlement. These procedures may be preferred – they are more efficient, they are more flexible, they are certainly faster – but they should not come at the cost of due processes [or] transparency [or] consistency.

Cause for celebration

"There are some comforting findings. One in 3 cases came to the attention of the OECD by self-reporting – somebody from the company [reported them]. This suggests that companies are willing to come clean when things have gone wrong. The increase in the number of cases concluded over time is also encouraging. In the first 5 years, less than 10 cases were concluded per year. The number is now about 60 cases per year in the last 5 years. It [the rise] is also related to the willingness of governments to prosecute. So we know that we have to do more, but how? Thanks to the evidence contained in the report, the OECD has identified several ways in which public authorities can step up their efforts.

Three steps to heaven

* "First, the leaders of the 41 member-countries of the OECD working group on bribery and the G20 must lead by example and prosecute corruption. Crucially, they need to make information on concluded cases publicly available.

* "Secondly, we need to redouble our efforts to pierce the corporate veil, put an end to the practices that have allowed intermediaries and beneficiaries of corruption to hide. We'll work to promote the G20 high-level [i.e. vague] principles on beneficial ownership transparency including, for example, the creation of central registries of beneficial ownership of legal persons. [This will be] a critical element on the tax side too.

* "[There should be more] integrity in public procurement. We should look at the demand side of bribery. This report looks at the supply side. Almost every country has one multinational and many have many of them. We must also make sure that those who seek to receive bribes are brought to justice. We're working with Transparency International and the World Bank...on these issues."

The full report is available at http://www.oecd.org/corruption/oecd-foreign-bribery-report-9789264226616-en.htm