Corporate bribery — EU needs to step up to the plate
From an institutional perspective, the EU looks strong on protecting the EU budget from fraud and corruption. But is enough done to protect the internal market from international corruption? To what extent is corporate bribery seen as a practice that undermines competition? And how come the European Commission can sanction firms for competition-related violations but has only limited means to act against market distortions by firms that bribe their way into business? Branislav Hock is a Lecturer in Counter Fraud Studies at the University of Portsmouth’s Institute of Criminal Justice Studies. In this article, he looks at who takes action — internationally — against corporate bribery, and who does not, and likewise who takes the lead on anti-corruption compliance. He argues that there is still a world to be gained for the EU.
By Branislav Hock, University of Portsmouth
Hidden progress and hope for credibility
Corruption continues to be a challenge for Europe — a phenomenon that costs the European economy an estimated € 120 billion per year. This was the key conclusion of the EU Anti-Corruption Report more than five years ago. Yet, hopes for a more focused and robust EU role in fighting international corruption have not been fulfilled since then. Things did indeed start well, as the ECA pointed out, but the EU’s effort lacked the necessary detail, determination, and creativity to substantiate its anti-corruption policy.
According to Transparency International at first sight, an EU citizen may see the EU’s anti-corruption effort as a failure. For example, the promises of bi-annual monitoring of the Member States’ efforts have not been met. Furthermore, the EU institutions have not been monitored by an external body, with the exception of the European Union Integrity Study by Transparency International in 2014 and the recent ECA special report 1/2019. Even for a person genuinely interested in EU anti-corruption matters, it is hard to understand why the European Commission is still negotiating participation with the Group of States against Corruption (GRECO), the Council of Europe’s anti-corruption monitoring body, without much progress. Similarly, the Commission still has not completed the self-assessment mandated by the United Nations Convention Against Corruption (UNCAC). These rather disappointing developments do not help the EU institutions gain the credibility they so badly need.
EU citizens need more explanation about the role the Union plays in the global anti-corruption arena. The EU institutions should explain to its citizens what the EU has done to make Europe less corrupt than five years ago. While a more global EU anti-corruption effort has somehow evaporated, EU institutions and agencies such as Eurojust, Europol, OLAF (the EU’s anti-fraud office) and the ECA are traditionally strong on protecting EU-related funding. Moreover, the establishment of a new European Public Prosecutor’s Office (EPPO) with powers to investigate, prosecute and bring offenders to justice for crimes such as fraud, corruption or serious cross-border VAT fraud has potential to strengthen the system even further. These measures, however, are limited in their focus on the EU budget.
International bribery as part of internal market distortions
More ambitious are measures aimed at enhancing the resilience of the internal market against fraud and corruption. Corporate bribery of foreign government officials can be seen as a practice that undermines competition. Corporations that give money to government officials in order to obtain business have a competitive advantage over corporations who do not have a policy of bribery. If corruption and bribery have negative effects on the internal market, the EU should claim more regulatory power in this field.
Having said that, some first initiatives have been taken. The EU has engaged significantly in protecting the internal market from distortions caused by transnational economic crimes. Consider the Commission’s ongoing effort to incentivise financial institutions to prevent money laundering and terrorist financing (European Commission) and improve transparency regarding the real owners of corporations, and the European Parliament’s recent proposals in the area of tax evasion (European Parliament). The Commission’s supervision, including through its supervisory agencies such as the European Banking Authority (EBA), in the fight against money laundering has become stronger and more integrated (EU Commission).
EU-based companies and Member States’ legal systems are becoming increasingly Americanised
Yet, measures to protect the EU’s internal market are not sufficiently corruption-specific. Unlike the regime of the Organisation for Economic Cooperation and Development (OECD) and the US regime, which regulate against international corruption and bribery to protect market competition from corrupt businesses, the EU looks at the problem largely from the perspective of criminal liability on the part of corrupt government officials. This is somehow paralysing because criminal law enforcement is under the responsibility of the Member States. Until recently, however, the Member States have not been very active in enforcing their own anti-corruption laws.
In the US, corporate crimes such as money laundering and international bribery are being investigated and prosecuted on an unprecedented scale. According to Moody’s, for example, European banks such ING, Deutsche Bank and BNP Paribas were fined over $16 billion from 2012 to 2018 in connection with money laundering and trade sanction breaches. Yet, the vast majority of these sanctions were imposed by US authorities, as reported by the NY Times. Similar trends can also be seen in other areas of economic crime. My own research shows that from 2008 to 2018, US authorities imposed over $13.6 billion in sanctions on non-US corporations that engaged in international bribery. The majority of these non-US corporations were European firms such as Siemens, Alstom, VimpelCom, Telia and Rolls-Royce.
European corporations are sanctioned by US authorities because they fall under their jurisdiction, but also because EU and Member State authorities have not been active enough. Many European corporations are listed on the NY stock exchange, use US dollars, have subsidiaries in the US and do business with US corporations. The US enforcement authorities have been very creative in assigning their jurisdiction to European corporations. In effect, we see an extensive Americanisation of anti-corruption approaches in Europe. The US statutes, such as the Foreign Corrupt Practices Act (FCPA), have become a model that has inspired the OECD Anti-Bribery Convention, national anti-bribery laws and the enforcement practices of national enforcement authorities in Europe and beyond.
The Member States have only recently become active in fighting international corruption, and to a large extent are following US practices in this area. Countries such as France and the UK, for example, have adopted legislation that allows prosecutors to negotiate out-of-court resolutions with corporations. In exchange for cooperation with prosecutors, corporations might avoid a criminal conviction and receive lower penalties. While buying a good ethical standing is not part of the European legal tradition, and controversial as far as the rule of law is concerned, the system is better than the one in which the Members States did not sanction corrupt corporations at all.
Also, thanks to the possibility of reaching an out-of-court settlement, Member States’ enforcement authorities have started enforcing their own anti-corruption laws. Consider SBM Offshore, Telia Company, Société Générale and Rolls-Royce, which all entered into global foreign bribery settlements and agreed to pay fortunes to US, UK, French, Dutch and other authorities. In the vast majority of global settlements, the US authorities led negotiations and ‘allowed’ the Member States to take a piece of the pie when collecting penalties. The enforcement landscape is undeniably becoming global in an American way.
Who will standardise global anti-corruption compliance?
The EU is losing a lot by not being more ambitious in the field of international anti-corruption law. Besides, the possibility of US enforcement protectionism, the aggressive enforcement of the FCPA and other US anti-corruption laws has changed businesses. Businesses are expected to design effective compliance programmes to prevent economic crimes, and to self-report detected violations to US authorities. This system of enforcement has created a global market, led by US consultations, audit firms and law firms.
Compliance industries need standards and ethical codes for guidance on applying the right norms and practices (see Brenninkmeijer et al 2018). In the anti-corruption field, such standards are emerging, as illustrated by the ISO anti-bribery standards. The current regime, however, relies on the authority of US prosecutors, who enjoy wide discretion in negotiating settlements with corporations. The power of US prosecutors somehow counter-balances the power of the private sector to self-regulate in this area. After all, under the US system, prosecutors rely heavily on results of internal investigation by consultancy/audit firms. In the European context, prosecutors are not so powerful and it is not clear whether, or how, additional public guarantees should be provided.
‘Slap these fines’ — Europe should be more ambitious
Besides the evolution of a — largely American — anti-corruption industry, the EU also seems to underestimate the huge disruptions that international corruption and bribery cause to the EU internal market. The EU simply needs to do more, because international corruption has impact on EU citizens, corporations, and its internal market. Bringing in the EU rationale would create a balance between a business-driven American system of enforcement and the need for the rule of law, while also encouraging cooperation and coordination on enforcement between multiple enforcement authorities.
The European Commission already has good experience with ‘balancing out’ the American model of good market competition through the enforcement of EU anti-trust rules. The US is not particularly happy that the European Commission has repeatedly fined US hi-tech champions billions of euros for abusing dominant positions and hurting consumers, as illustrated by a recent tweet by President Donald Trump.
Some experts and colleagues think big: they propose establishing an international anti-corruption court. I am not so ambitious. Thinking disruptively, I want to see a much stronger anti-corruption initiative at the EU level. International corruption and bribery are problems of economic governance and market competition. The EU should act accordingly by really addressing the problems at EU level. Unfortunately, looking at the problem predominantly from the perspective of criminal liability on the part of individuals has left Europeans frozen theorising about corporate corruption and bribery rather than doing something about it.
While the American system may be controversial, the EU and its Member States can still learn a lot from the US approach. In any case, it is certainly better than the system in which corporations such as Siemens had special bribery departments and bribery-cash machines. The other alternative is for the EU to leave hegemonic enforcers such as the US to set their own standard. This is not ultimately a bad thing, but the EU should aim higher and address the rather striking contrast between the Commission sanctioning US firms for competition-related violations, but having no powers in relation to similarly dangerous distortions of competition by firms that bribe all around the world.
This article was first published on the 2/2019 issue of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.
