Select Committee on International Development Minutes of Evidence

Examination of Witnesses (Questions 323 - 339)




  323. First of all, can I welcome you all this morning and thank each one of you for coming this morning but also for giving us some excellent evidence on this difficult subject. You will understand that we are investigating this subject because we have been convinced that corruption is actually a very serious deterrent to foreign direct investment and, indeed, internal investment in Third World countries, or any country, not just Third World countries. Therefore, the International Development Committee is vitally concerned, of course, to make certain that all the conditions in developing countries are conducive to direct investment. Corruption is named as one of the major deterrents against such investment, both from internally generated funds and from foreign sources. That is our interest. We are going to have to be very disciplined this morning because there are a lot of you and you have a lot to say I know and we have a lot of questions for you. One of the reasons why we have unfortunately kept you waiting slightly is that we were concerned to cut down the number of questions we were going to ask you in order that we can get through the business and get to the core of the problems we are facing. The structure this morning is that we have got some generic questions to ask which any one of you can contribute to and then we are going to hurry on to specific questions which concern your own particular companies which have come out of your written submissions. I say, again, I would like to thank you for what has been a considerable amount of work on the part of your staff and yourselves to produce the written evidence you have given to us. Can we start, therefore, straight on with the questions and I have asked my colleagues also to be as short as possible in asking you questions as I hope you will be as short as you can be in answering ours. Can I ask, first of all, about the role of the private sector. The questions I want to ask under this heading are in three sections. What role does the private sector have in tackling corruption in countries where it is endemic and what examples of best practice are there? Perhaps I can put all three of them to you so you have time to think about them and then which of you would like to answer the questions. How effective are integrity pacts in eliminating corruption? Could these be extended to industry-wide agreements rather than one-off pacts negotiated for specific contracts? Under what conditions can links with local chambers of commerce and anti-corruption coalitions be effective in the battle against corruption? Who would like to volunteer to begin with and answer one or more or all three of those questions?

  (Mr Welton) Chairman, could I volunteer on the first point?

  324. Yes, Mr Welton from Balfour Beatty.
  (Mr Welton) The role of the private sector and examples of best practice in how that can be improved. Certainly the public opening of tender bids is a fundamentally important process.

  325. Yes.
  (Mr Welton) The US style of tendering, particularly for public works, is an excellent example of that where there is a public opening. There have to be absolute rules of the awards of tenders in accordance with the rules and in order for the bid, which is usually the lowest bid, to be accepted it has to comply with those rules. There is public evidence for everybody to see, the other tenderers as well as the public at large, that the process is being adhered to. Now obviously some contracts are more complex and there has to be a negotiated procedure following that but I believe, also, that negotiated procedure should be public. The audit trail from the original public opening of the bid process through to the final award is an absolute fundamental. The US style of conducting that business in most public works is an excellent example of that.

  326. In developing countries is the American practice used to any great extent?
  (Mr Welton) It varies enormously. In some cases it is used and in many cases it certainly is not.

  327. That is an example of best practice.
  (Mr Welton) Indeed.

  328. Which you would be advocating to those countries in which you are seeking a contract, is it?
  (Mr Welton) Very much so.

  329. Yes. Mr Phillips from Crown Agents.
  (Mr Phillips) Chairman, I would make the obvious comment, I think, that the role of the private sector or the absence of the private sector in many countries is a way of responding to or indicating the severity of corruption in many of the countries in which we would otherwise be investing.

  330. Yes. If you have very little private sector it is because of corruption?
  (Mr Phillips) Yes. Often.

  331. Any other points. Mr John Bray?
  (Mr Bray) Perhaps a broad point. I had a conversation with somebody from Transparency International in Zimbabwe, it was two or three years ago. He made the point that the very word corruption within Zimbabwe was even then a politically sensitive issue and then that if a domestic company even used the word or raised it as a concern that was regarded as politically partisan in some ways whereas if an international company said "This is our best practice and we have to follow certain practices because that is what head office says we have to do" then that was more likely to be accepted. The point, therefore, being that being a model of best practice and applying that model in all your dealings, for example with your own subcontractors, is in itself a very important role which companies can play.

  332. Yes. Dr Reg Hinkley, Vice President and General Auditor of BP.
  (Dr Hinkley) Yes. I think I would really just like to reinforce a couple of points which have been made. I think, firstly, it is the bidding process or tendering process, which ensures transparency, that is important; and, of course, in the major areas in which we are involved, particularly in the upstream licensing processes, for example, there is a very strong competitive process. I think the other side of this is really the occurrence of companies like ourselves in the local communities through time. We do have, through the behaviours of our staff and the code of ethics within which they operate, the opportunity to demonstrate good practice continuously and as a company that is what we do strive to do.

  333. Yes. That in itself, good practice, practice by you in the companies itself, is an example and an influence on the way business is conducted. It is very important that you keep up your standards.
  (Dr Hinkley) Yes.

  Chairman: I am going to hurry on to deal straight away with the culture of corruption and political corruption too, which Piara Khabra is better qualified than me to question you on.

  Mr Khabra: I want to talk about corruption in developing countries. As you know Corner House challenges the idea that there is a "Third World culture of corruption" and argue that much of the bribery by Western companies is underpinned by the incorrectly held view that "bribery is the way one does business in the South". BP also said "the distinction between what constitutes corruption and legitimate business incentives can be difficult to draw for a manager working in different cultures". I find it very difficult to understand what is the distinction between corruption and legitimate business. I think in my personal view legitimate business is an excuse to indulge in corruption. What we have been told is that it can sometimes legitimately draw a distinction between corruption and legitimate business incentives especially where there are cultural differences. What examples are there of situations where it is difficult to draw a distinction between corruption and local practice? Are Northern businesses ever guilty of lowering their standards in developing countries in the mistaken assumption that it is culturally appropriate? My view is that if companies with that sort of mentality go into developing countries to do business they are already prepared to indulge in corruption.


  334. Now, since you have been named, BP, Dr Reg Hinkley, would you like to start the answer to that perhaps?
  (Dr Hinkley) Yes. Well, I think I would have to start by referring back to the policy which we have circulated to you. I can only say that policy derives from guidance and, indeed, boundary conditions that are set by our board. We, as employees of the company, are bound to operate within those guidelines. The papers we sent you are the expression of those guidelines that we pass to all our managers and they are bound to operate within them. You used a number of terms in your question which I think we want to draw out. First of all, you talked about bribery. There is an absolute bar on bribery. We ensure through various enforcement procedures through the company, in which obviously internal audit plays a major part that bribery is in no way condoned and, indeed, conducted. I think the allusion to local culture plays against the differences that we see in local practices where it is not so much a question of difficulty but the judgments which have to be made in many circumstances as to whether the form in which you do something complies with the policy. Those judgments are made continuously and we try and provide as much support to our staff to make those judgments within the right frame of reference. Certainly we start from the proposition that there is a policy in place, we expect our staff to operate within it. At times difficult questions come up and we seek to resolve those consistently with the policy.

Mr Khabra

  335. Can I ask you a question particularly about India. I come from India. I do not consider that it is right to say that there are practices which are corrupt, there is a culture which is corrupt. It could be that we find in a democracy where politicians are involved and the electoral system as such, the election expenditure and all those things put together, there is a situation where it is at the top that corruption exists, not at the bottom in the society at all. To use the word "culture" also in my view is wrong because I do not think there are open practices where corruption is encouraged. I think it is the business people particularly who are the ones who are very much involved. It may be that you have more experience of dealing with those businesses rather than to call the whole society corrupt.
  (Dr Hinkley) I agree that one has to be very careful about sweeping generalisations here, that is a very fair point. My background is BP, my direct experience of India is relatively limited. As a sort of general proposition I would have to come back to say in practice our people in those sorts of situations are endeavouring to ensure that in their local business dealings they are operating within the policy. They have found that in many, many cases they can operate within that policy. That is the ethos within which the company works.

  336. Did you want to add anything?
  (Mr Phillips) Yes, I would, if I may. The reference to, if you like, a culture of corruption, we talk in developed countries about a culture of compliance. I think that one of the things is that it is not so much that there is a culture of corruption but there is a power beyond prosecution in many of the countries in which we operate in the developing world where the chances of a particular case reaching prosecution and appropriate deterrent action or sanctions being taken is relatively limited. Whereas the environment in the UK and elsewhere is very much more that you do know, you do believe, that if you commit a corrupt act the chances of you being found out and/or prosecuted for it are very, very much higher. I think it is not a social thing, it is the environment in which operations are conducted.


  337. Mr Williams, you have spoken in your written evidence about this area in terms of the necessity to pay what you call "facilitating sums of money" of what you describe as a minor nature, like getting your goods through customs sheds.
  (Mr Williams) Yes.

  338. Is this a problem? The difficulty of drawing a line between facilitating and bribery is not easy, is it?
  (Mr Williams) It is not easy but, let us face it, that is what competent managers are supposed to do. My position is quite clear. There is no such thing as a sliding scale of toleration of corruptibility. I think in terms of our code, I suspect along with many of my colleagues on the platform, it is an absolute prohibition and bar to bribing officials for advantage on pain of dismissal, summary dismissal. The issue of facilitating payments is an interesting one. Certainly we do not encourage them, we discourage them. We actively discourage them in business. The phenomenon cannot be ignored, we would be being naive if we did ignore it. After all, the OECD in their guidelines, the International Chamber of Commerce in its are all seeking to ring fence this as a particularly difficult area, and it is. How do we cope with it? We try and have a white line, as white a line as possible, because otherwise it would not be fair on our own managers. That white line is these payments have to be very, very modest in nature. They have to be directed towards the achievement of something that the official in question is supposed to do anyway. Most importantly they have to fall fully within local custom and practice, to be transparent and to be public. In that context, if they are otherwise unavoidable they will be tolerated, tolerated only, never encouraged.

  339. Your local company board would they have to authorise this?
  (Mr Williams) They would.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 5 April 2001