Select Committee on International Development Minutes of Evidence


Examination of Witnesses (Questions 340 - 359)

TUESDAY 9 JANUARY 2001

MR DAVID PHILLIPS, MR IAN WHITE, DR REG HINKLEY, MR MIKE WELTON, MR STEPHEN WILLIAMS AND MR JOHN BRAY

  340. They would. No question of undertaking facilitation, it has to have the board approval of the local company?
  (Mr Williams) Certainly of the chief executive, the local chairman and/or his board.

Mr Robathan

  341. I want to pursue this slightly further with Dr Hinkley, if I might. You have just said small payments, Mr Williams, so what we are talking about is small bribes, that is how it looks to me. If I was one of your managers I would have a problem. I know you pray in aid the OECD and the Foreign and Corrupt Practices Act, or BP do. Let me just quote you, Dr Hinkley. Examples include small payments to enable or speed up legitimate processes such as clearing goods through customs. If I was one of your local managers at either Unilever or BP and I happened to be hanging around and someone said these small payments were normal I would think that I was bribing a customs officer to get the clearance of goods. Now perhaps I am naive living in London, and I hope leading a relatively ethical life—I hope—but perhaps somebody might explain to me what the difference is between giving a customs officer money to clear goods through customs as a bribe and giving them money to clear goods through customs as a facilitating payment?
  (Dr Hinkley) I think our position is very similar to that which Mr Williams has espoused of his organisation. We do not start from the proposition that we want to make facilitation payments.

  342. Why do you not refuse to make them?
  (Dr Hinkley) I think the point is that we are in certain situations where it is custom and practice and we have to make judgments about the legitimacy of them in that context. I think Mr Williams drew a distinction which I also draw between doing things which are clearly against the law or clearly designed to achieve unfair advantage or non commercial advantage versus practices which are essentially about timing. It is unfortunately the case that in some parts of the world officials have an influence to delay transmission of goods or services through certain procedures. It is normal practice in that community to facilitate the normal course of business. As I say, we try to discourage this wherever we can. Our staff are required, as in Mr Williams' case, to make these things transparent and they do require the authorisation from, in our case, business unit leaders so that what is going on here is seen to be reasonable overall in the light of a particular situation we are dealing with. We are talking also about very small payments.

  343. Surely by accepting this as custom and practice that is the beginning of a slippery slope?
  (Dr Hinkley) No, I do not think it is the beginning of a slippery slope. It is certainly not something that we like but I do not think you can say "Well, we extrapolate this" and then say "Well, that justifies bribery, illegal acts" or whatever else, it does not.
  (Mr White) I am just a little concerned at the issue that is being raised here of facilitation payments. I do not see how you can differentiate between facilitation and bribery.

  344. Nor do I.
  (Mr White) Basically there is a rule of law. The law says there should not be any additional payment. What one has to do is to stand firm as the international representative of a company and refuse to pay those kinds of bribes because you are just perpetuating the system to make that bribery turn from something to speed the process up into something that says "Well, you pay less duty if you pay me some money". I do not see how you can differentiate in that way at all and I am a little shocked to hear that kind of approach being made.
  (Mr Williams) I think I really have to come back on that misrepresentation of what I said. There is no part of this company's policy to do anything which is against the law in any jurisdiction at any time.
  (Dr Hinkley) Ours is the same.
  (Mr Williams) At any time.
  (Mr Bray) Perhaps I could make some clarifications on the legal definitions. The definition Mr Robathan quoted was, I believe, from the Foreign and Corrupt Practices Act. The distinction in law is that that Act is against bribes to secure a business or a business advantage and that Act is saying that these are different. However, there are legal problems, and I think they have been hinted at earlier on, which are that in many of the countries where these facilitation payments are made they are illegal under domestic law. Therefore, in some of the guidance which is given in different codes to managers: "you may pay such facilitation payments as long as they are legal", it is often a contradiction. There are real problems and there are problems of explaining both to your employees what the difference is, the fact that we are having these difficulties reflects that, and there are problems, also, in explaining to somebody who might demand a bribe that, yes, you will pay one kind of payment but not another. Therefore, our recommendation would be resistance, and resistance I think is a key word even in places where illicit payments are customary, but at the same time we do have to recognise that people are put under pressure. I think the word extortion has to be brought in here. In the case of customs there are some kinds of customs hold ups which amount to a kind of commercial extortion. An example would be where a mining company has equipment which would lead to great delays, and if it is held up for one day it costs thousands of dollars, whereas the payment being demanded is actually quite small. In that kind of situation the manager is put under really quite acute pressure. The solutions are, first of all, that the company needs to know what is going on and, therefore, there has to be a very good communications system. The solution may be in that case to take up the problem at a higher level than the junior customs official, and that is something which large companies are often in a stronger position to do than small companies.

  345. Like Unilever and BP?
  (Mr Bray) Yes, and as a matter of practice I think they do.

Mr Worthington

  346. I am very puzzled by this emphasis on transparency. It has to be open within a situation of where all firms clam up all the time for commercial confidentiality. I do not see how you can have transparency and commercial confidentiality at the same time. In the case of Balfour Beatty or BP or any company, you would not be arguing, would you, that all the details in the contract should be made open to the public?
  (Mr Welton) No, of course not.

  347. Why not?
  (Mr Welton) Because there is commercial confidentiality and this is one of the constant balances that any modern company has to constantly be aware of. It has to balance between its own confidential behaviour versus its competitors and transparent behaviour which shows that it is a responsible company and it is responsible to the public at large and is representing properly its shareholders' interests.

  348. I suppose one gets most upset when it is a public resource where it is, say, an extractive industry or where a dam is being built and one does not know where the money is going. One cannot think of any contract that has ever been awarded where you can see where the money has gone.
  (Mr Welton) I think you should be able to see in broad terms where the money has gone because you can actually see the volume of work that is being carried out and what is a fair and proper rate for that work, even in complex projects. That is easily compared from one company to another, one government to another, one authority to another, and consultants, for example, test such things every day of the week. It is possible to make judgments whether sums of money paid for contracts are fair and reasonable. Inevitably there will be some flexibility in that but you can certainly examine whether it is a fair and reasonable sum or it is, indeed, an outrageous sum.

Ms Kingham

  349. I would like to come back to the issue of the facilitation payments or similar bribes. Crown Agents, you have been involved in helping to fight corruption and work with the Mozambique Government in reforming their customs operation there. You said that you do not make a distinction between facilitation payments and bribery. Does that mean then that the actions of companies such as BP or Unilever by engaging in these kinds of activities in future will be jeopardising the long-term sustainability of your project there? Obviously when you pull out these kinds of operations will still be going on and that must undermine the integrity of the kind of work that you do surely?
  (Mr White) That would be precisely what concerns us, Chairman. We are trying to create a transparent and open system. What we want to encourage is companies who are forced or feel coerced to pay bribes to report that to the relevant authorities wherever possible. The process is sometimes slow and there are emergencies. In a modern customs service what you do is build and design services to enable emergency goods to pass quicker. It is much better to do it that way than to try and create artificial avenues to break customs procedures. Yes, it would certainly undermine what we are trying to do in Mozambique.

  350. Are any discussions going on at the international level between donors to try to co-ordinate these activities with the private sector to ensure that the integrity of donor projects internationally are being sustained?
  (Mr White) I would not say particularly at a donor or international level, although we have had discussions with the International Monetary Fund on this and the World Bank and with DFID who are part funding our contract in Mozambique. What we do do, however, is talk very much to local businesses, both international representation and local companies, to try and instil in them the ability to want to complain and to make a point when they are being asked for bribes. Creating an open atmosphere and creating the sense that if people do complain they have an avenue and route whereby redress will be guaranteed is a much better approach to this whole thing. It seems to me that you are on a very slippery slope, as I think someone said earlier. Making a facilitation payment or "speedy money", as it is quite often called in Africa, is just the same as paying a bribe in any other society. You are just encouraging that whole under the blanket approach to continue.

Mr Khabra

  351. Who are the beneficiaries of this sort of corruption: the Government officials and up to what level? Is it not that there is some sort of collaboration between the company's officials to negotiate the corruption with people who are in a position to help you to start the business actually? You used the word "slippery slope" situation, is it a slippery slope situation that you cannot get out of?
  (Dr Hinkley) I can only go back to what I said earlier on. I do not think it is an unavoidable slippery slope here. There are real boundaries. The policies we have put in place describe absolute boundaries in the same way that Mr Williams talked about. We are talking about situations which are by their nature small which arise in day to day life where local custom and practice is difficult to avoid. I fully take the point which says that over time this is something we want to minimise and ultimately eliminate. Our stance is no different from Mr Williams' stance on that. Generally it is a local issue and it is not something that we look at systemically through the whole of the culture.
  (Mr Bray) Can I just quickly take your question about who benefits. The answer is that it varies. It is often an opportunist act on the part of the official, the minor official, but sometimes it is actually quite systemic, there is a parallel system where funds are paid upwards to more senior officials though collected by junior officials. That brings up the phrase "avenue and a route" from our colleague from the Crown Agents and your earlier comment about culture. We are not talking about values, we are talking about institutions. What the Crown Agents are doing is trying to create and reinforce institutions. Where those institutions do not exist then companies are in particular difficulties. What companies need to do is to find avenues and routes, and that may involve a bit of determination on their part assisted by other elements of civil society and government support.

Mr Robathan

  352. I am sorry to dwell on this but I think this is a very important issue. Dr Hinkley, you have made it very clear that you do not like these facilitating payments, listing your potential risks they include personal exposure to criminal laws.
  (Dr Hinkley) Yes.

  353. Now I am not talking Heathrow, although there is no reason why the analogy should not be made to Heathrow, but what you are talking about is a big company with the money and the clout who ought, above all others, be it Unilever or BP or Balfour Beatty, to be standing up to petty corruption, because that is what it seems to be to me. You have some poor official who is perhaps paid a dime and is trying to make a dollar through charging more. I understand all the difficulties, we all understand the difficulties. But the only way to change the institutionalisation of this is for big companies to say no. Now actually you can afford to pay because it is a few dollars on your balance sheet, it means nothing to you. Do you not understand—of course you understand—I would like you to comment on this, this is completely distorting the system because the small person cannot pay and it is the little companies who are trying to make their way through, reporting the customs officials for instance or whoever it is, who suffers. Surely you have a responsibility as the big companies to stand up and say "no" with these pacts or whatever it might be?
  (Dr Hinkley) I think we accept a general responsibility to say no wherever we can.

  354. Why can you not, always?
  (Dr Hinkley) No, we cannot always because the practical circumstances of individual situations are at issue. We are talking about transactions where so far there is not a general international proscription which solely derives from the practicalities. It is not a matter of principle. I think we have stated very clearly that we do not like making facilitation payments and we try to resist them wherever possible. Picking up some of the earlier points, if we have the opportunity of exercising influence at more senior levels then we will take those routes as well. I think that is a very fair point. But we do not think at the moment it is practical for us to end up with an absolute proscription of this sort of thing given the state of the world as it is today. That is what we are saying.

  Chairman: I am going to move on to some of the attempts to change the situation, the OECD Convention and the implementation in UK law. Andrew Rowe will lead us on that.

Mr Rowe

  355. Thank you, yes. I must say I think this Committee has been somewhat shocked to discover that contrary to what we were led to believe at the beginning the UK is actually more relaxed in its legal regimes than many other countries about the toleration of corruption. For example, Transparency International are very critical of the way the Government has actually implemented the OECD Convention. I think we were found by the OECD to be probably the least effective country of the OECD. What I would like to ask any of you is how will the changes in legislation the Home Office is proposing to implement in the OECD Convention affect business and will they be an effective deterrent?
  (Mr Welton) I think the first comment, Chairman, would be that whatever actions are taken must be multinational and the OECD, as a multinational organisation, obviously has a better chance of succeeding than an individual state making a particular stand. It is absolutely essential that as many nations as possible buy in to the process whatever that might be to reduce or eliminate corruption. Our comment on that would be that we would support it and we would support the UK Government's support, should it come, of that. Most of us that are represented here are in some shape or form multinational. We are subject to the laws of other countries as well as the law of our own country and we are used to that. We would support whatever moves are made as long as they have teeth and can be practically implemented.

Chairman

  356. Was it you, Mr Welton, in written evidence, who said you were disappointed not to find such legislation in the Queen's Speech?
  (Mr Welton) No, it was not.

  357. One of the written evidence said that. Mr Bray, did you say that?
  (Mr Bray) No, but I would now say that. It is a good idea.

  358. Did you want to make another point?
  (Mr Bray) If I may. I very much endorse the multinational side of it and that, indeed, is one of the main assets of the OECD Convention. Therefore, it would be good if the British Government played its role in its side of the multinational initiative. Just some further comments. The OECD Convention was never going to be a silver bullet which was going to solve the problem, it is one of a variety of instruments. It will take time to make a real impact. It will take time because the various countries, including our own, have to get their legislative acts in order. It will also take time because international investigations take a lot of effort and money so the impact will be cumulative. We are at a very early stage. I do not think that the fact that movement has been slow is a reason for pessimism. There is one aspect I would like to stress, though, which is the extent to which the OECD Convention is actually a benefit for business and it is a benefit because it gives an alibi, that is to say a justification, for resistance. If as a company you are approached by somebody demanding a bribe, it is a very strong advantage to be able to say "Look, I cannot pay, because if I do I will be prosecuted and I personally may go to prison". I think companies tend not to give sufficient stress to that, they talk about competition and they suggest they will be at a competitive disadvantage. I would like to suggest they are at a competitive advantage if they are backed by this kind of legislation.

Mr Rowe

  359. I wondered if our witnesses shared our surprise that there have been so very few, almost none, successful prosecutions for corruption in the UK courts? Very extraordinary I would have thought.
  (Mr Bray) On the question of prosecution for international offences, I am not a lawyer but my understanding, backed by the Institute of Advanced Legal Studies, is the law does not stand up and, therefore, there have been no prosecutions.



 
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