The UN Convention Against Corruption (UNCAC) is of compelling interest for international business because it provides a global framework for combating corruption. UNCAC has 140 parties, including key players in international trade, such as China, Russia, India and Indonesia, in addition to the major OECD countries. UNCAC also has a much broader scope than the OECD Convention. Thus, UNCAC is capable of tackling many issues that cannot be effectively dealt with by OECD or by regional anti-corruption conventions.

UNCAC’s broad scope and worldwide participation are its greatest strengths. However, they also present difficult challenges in moving from words to deeds. There is as yet no agreement to establish a follow-up monitoring programme to ensure effective implementation by the parties. ICC strongly supported the Convention during the negotiations leading to its adoption, but has also pleaded for effective monitoring. Without monitoring, the goal of creating a corruption-free level playing field for international business will not be achieved.

This chapter is divided into four parts. Section 1 will provide an overview of UNCAC’s scope and its potential effect on anti-corruption laws and programmes. Section 2 will deal with UNCAC provisions directly affecting international business. Section 3 will consider the preventive measures designed to strengthen national integrity systems. Section 4 will describe the need for an effective monitoring programme.

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Overview of UNCAC

UNCAC was adopted in 2003 and became effective in December 2005. It has been signed by 140 countries and has been ratified by more than 120 (as of mid-2008). UNCAC’s parties include industrialized, emerging, developing and failing economies. By comparison, OECD includes only 37 industrialized countries, while the regional conventions only cover countries in their regions. (The regional conventions and their websites are listed in the Appendix.)

UNCAC’s scope is extremely ambitious. There are 28 articles covering criminalization and law enforcement, covering foreign and domestic corruption, extortion as well as bribery, corruption in the public sector and the private sector, (embezzlement, illicit enrichment of public officials, abuse of functions and trading in influence). In addition, UNCAC contains important preventive measures designed to strengthen the capability of states to fight corruption; provisions on international cooperation, including mutual legal assistance, extradition and joint investigations; ground-breaking provisions on asset recovery; as well as provisions on technical assistance and information exchanges.

Several examples can be used to illustrate UNCAC provisions of particular relevance to multinational enterprises:

  • The provisions for international cooperation should substantially improve cooperation among national enforcement officials. There are detailed articles dealing with mutual legal assistance and extradition. These should expedite prosecutors ability to obtain evidence and witnesses located in other countries, thereby overcoming one of the biggest obstacles obstructing foreign bribery cases.
  • The criminalization provisions break important new ground. Particularly noteworthy is the article on “compensation for damages” which provides for private rights of action to enable those damaged by acts of corruption to obtain compensation from those responsible for the damage. Also of interest is the article requiring governments to “address consequences of corruption”, including annulling contracts and withdrawing concessions.
  • UNCAC includes innovative provisions on asset recovery designed to enable governments, most commonly in the South, to recover funds deposited abroad by corrupt officials, often in the North but increasingly elsewhere. In the past, asset recovery has been very difficult to pursue. The UNCAC provisions are likely to increase and accelerate this process. Companies dealing with corrupt officials must exercise high levels of diligence to ensure that any assets that they may obtain as a result of dealings with corrupt officials, or other politically exposed persons (PEPs), cannot be frozen and confiscated in asset recovery proceedings.

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UNCAC’s broad scope and worldwide participation provide unique potential for global progress against corruption. However, these same factors present difficulties and complexities in their implementation that will take time to overcome. The parties are at different levels of political, legal and economic development. Most UNCAC provisions are not self-executing and require governments to pass new legislation, to build and strengthen organizations and provide them with adequate funding and staffing. Some UNCAC provisions are mandatory (“governments shall adopt laws”), others are discretionary (“governments shall consider adopting laws”). Some are spelled out in great detail: the article on mutual legal assistance includes thirty sections, others are expressed only in broad generalities.

The rate at which UNCAC implementation will progress is difficult to predict. That over 80 per cent of the parties have ratified UNCAC is a positive sign that governments recognize the need for comprehensive international action. There is widespread recognition of two fundamental points: (a) globalization of economic life will continue to expand, and (b) corruption operates on a global scale and is continuing to grow. Therefore, there is a compelling need for UNCAC to evolve from a promising legal framework into effective action programs.

UNCAC provisions directly affecting international business

The provisions of most direct impact on international business are primarily in the Chapter on Criminalization and Law Enforcement.

Article 15 “Bribery of national public officials”, is a mandatory requirement that governments criminalize domestic bribery (active corruption) and solicitation (passive corruption). The OECD Convention only deals with bribery of foreign public officials. Bribery of national officials is prohibited by the criminal laws of most countries.

Article 16 “Bribery of foreign public officials and officials of public international organizations”, is a mandatory requirement that governments criminalize foreign bribery. However, the criminalization of solicitation by foreign public officials is left discretionary. The prohibition of solicitation under Article 15 would apply whether the company solicited is domestic or foreign. The OECD Convention covers bribery of foreign public officials, but does not deal with solicitation.

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UNCAC Convention Article 16

Article 16

Bribery of foreign public officials and officials of public international organizations

1. Each State Party shall adopt such legislative and other measures as may be necessary to establish as a criminal offence, when committed intentionally, the promise, offering or giving to a foreign public official or an official of a public international organization, directly or indirectly, of an undue advantage, for the official himself or herself or another person or entity, in order that the official act or refrain from acting in the exercise of his or her official duties, in order to obtain or retain business or other undue advantage in relation to the conduct of international business.

2. Each State Party shall consider adopting such legislative and other measures as may be necessary to establish as a criminal offence, when committed intentionally, the solicitation or acceptance by a foreign public official or an official of a public international organization, directly or indirectly, of an undue advantage, for the official himself or herself or another person or entity, in order that the official act or refrain from acting in the exercise of his or her official duties.”

Article 18 “Trading in influence”, Article 19, “Abuse of functions” and

Article 20, “Illicit Enrichment”, are discretionary provisions which have considerable potential for broadening the reach of criminal law beyond the traditional prohibitions of bribery and extortion. Article 20 is particularly important because it shifts the burden of proof on to public officials who get rich in office. These provisions go beyond the OECD Convention. Companies need to consider whether to cover Article 18 under their anti-bribery policies; this raises the difficult issue of distinguishing between legitimate lobbying activities and improper trading in influence.

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UNCAC Convention, Articles 20 and 21

Article 20

Illicit enrichissment

Subject to its constitution and the fundamental principles of its legal system, each State Party shall consider adopting such legislative and other measures as may be necessary to establish as a criminal offence, when committed intentionally, illicit enrichment, that is, a significant increase in the assets of a public official that he or she cannot reasonably explain in relation to his or her lawful income.”

Article 21

Bribery in the private sector

Each State Party shall consider adopting such legislative and other measures as may be necessary to establish as criminal offences, when committed intentionally in the course of economic, financial or commercial activities:

  1. The promise, offering or giving, directly or indirectly, of an undue advantage to any person who directs or works, in any capacity, for a private sector entity, for the person himself or herself or for another person, in order that he or she, in breach of his or her duties, act or refrain from acting;

  1. The solicitation or acceptance, directly or indirectly, of an undue advantage by any person who directs or works, in any capacity, for a private sector entity, for the person himself or for another person in order that he or she, in breach of his or her duties, act or refrain from acting.”

Article 21 “Bribery in the private sector”, and

Article 23, “Embezzlement of property in the private sector”, are both discretionary provisions. Their implementation is important because the line of division between the private sector and the public sector has become blurred with the private sector taking on traditional public functions. These provisions go beyond the OECD Convention.

Article 23 “Laundering of proceeds of crime”, is a mandatory provision. It provides that the corruption offences covered by UNCAC shall be predicate offences triggering the anti-money laundering prohibitions. This provision goes beyond the OECD Convention, which makes foreign bribery a predicate offence only in countries where bribery of domestic officials is a predicate offence.

Article 26 “Liability of legal persons”, is a mandatory provision calling for corporate liability for the offences covered by UNCAC. This is an important step, because it should accelerate the abandonment of the antiquated concept that only [Page25:]individuals and not corporations shall be criminally liable for offences. Article 26 provides that the liability of corporations may be criminal, civil or administrative; thus, it does not require that corporations shall be criminally liable. Governments must provide that corporations are “subject to effective, proportionate and dissuasive criminal or non-criminal sanctions, including monetary sanctions”. UNCAC’s treatment of corporate liability is similar to that of the OECD Convention.

UNCAC Convention article 26

Article 26

Liability of legal persons

  1. Each State Party shall adopt such measures as may be necessary, consistent with its legal principles, to establish the liability of legal persons for participation in the offences established in accordance with this Convention.
  2. Subject to the legal principles of the State Party, the liability of legal persons may be criminal, civil or administrative.
  3. Such liability shall be without prejudice to the criminal liability of the natural persons who have committed the offences.
  4. Each State Party shall, in particular, ensure that legal persons held liable in accordance with this article are subject to effective, proportionate and dissuasive criminal or non-criminal sanctions, including monetary sanctions.”

Article 29 “Statute of limitations”, is a mandatory provision calling for long statutes of limitations for corruption offences. It also provides for a longer limitations period or a suspension of the statute where there is evasion by the offender. Article 29 is stronger than the OECD Convention.

Article 31 “Freezing, seizure and confiscation”, is a mandatory provision calling for the confiscation of the proceeds of corruption and of property used in or destined for use in corruption. Bank and other financial records shall be made available and bank secrecy may not be asserted. The OECD Convention provides that bribes and the proceeds of bribery are subject to seizure and confiscation.

Article 33 “Protection of reporting persons”, is a discretionary provision for protection of persons who report offences under the Convention to the competent authorities (whistle-blowers). This is not covered in the OECD Convention.

Article 34 “Consequences of acts of corruption”, provides for annulling or rescinding contracts or withdrawing concessions in case of corruption. This is not covered in the OECD Convention.

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Article 35 “Compensation for damages”, is a mandatory provision calling for measures to enable persons damaged by acts of corruption to obtain compensation from those responsible for such damages. This provision for private rights of action has far-reaching implications. Private suits could make up for the reluctance of public prosecutors to take action. The OECD Convention does not provide for private rights of action.

Article 35 is broadly worded. Its scope and effect will depend on implementing legislation and court decisions. Presumably suits could be brought by unsuccessful competitors and by various other damaged parties. It will be interesting to see how broadly courts will construe the category of potential plaintiffs: “entities and persons who have suffered damage as a result of an act of corruption”. Similar questions are raised regarding the category of potential defendants: “those responsible for that damage”. Presumably suits could be brought against corrupt companies and against corrupt officials. Can suits also be brought against governments that maintain corrupt procurement systems?

Article 37 “Cooperation with law enforcement authorities”, provides that governments may mitigate punishment or grant immunity to persons cooperating in investigations and prosecutions of corruption. This is not covered by OECD Convention.

Chapter IV “International Cooperation”, includes provisions on mutual legal assistance, law enforcement cooperation, joint investigations and special investigative techniques. These are important to international business, because they should speed up the traditionally cumbersome and time-consuming procedures for dealing with international corruption.

Chapter V “Asset Recovery”, is of principal benefit to countries whose corrupt officials have deposited stolen assets in foreign countries. Companies making foreign acquisitions need to assess, as part of their due diligence reviews, whether properties to be acquired could be subject to seizure and confiscation because of corruption by prior owners.

The successful implementation of UNCAC’s asset recovery chapter would be of far-reaching importance, because the attractiveness of corruption would be sharply reduced if corrupt leaders could no longer count on safely depositing the proceeds of corruption in foreign banks. In addition, recovery of stolen assets would contribute greatly to international development, because a large share of the estimated tens of billions dollars of such assets came from the poorest countries in the world.

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Strengthening national integrity systems

Many of the provisions in UNCAC’s Section on “Preventive Measures” are important to companies because they will strengthen integrity and accountability, thereby curtailing corruption, as well as improving conditions for doing business more broadly. The OECD Convention does not include preventive measures.

Article 5 “Preventive anti-corruption policies and practices”, requires governments to develop anti-corruption policies that reflect the rule of law, integrity, transparency and accountability. Periodic evaluations are called for to determine the adequacy of anti-corruption measures. This article should provide a useful advocacy tool for private sector and civil society groups.

Article 6 “Preventive anti-corruption bodies”, requires governments to establish organizations to implement the policies referred to in Article 5. Such bodies shall be granted the necessary independence to enable them to carry out their functions, as well as the necessary material resources and specialized staff.

Article 8 “Codes of conduct for public officials”, requires governments to promote integrity, honesty and responsibility among its public officials by means of codes of conduct. Such codes should encourage reporting of violations. Also called for are declarations by public officials of outside activities, investments, assets and substantial gifts from which conflict of interest may result.

Article 9 “Public procurement and management of public finances”, addresses two areas of government activity long subject to widespread corruption. Governments are required to establish public procurement systems based on transparency, competition and objective criteria in decision-making, including effective systems of appeal. They shall also promote transparency and accountability in the management of public finances, encompassing procedures for the adoption of the national budget, timely reporting on revenue and expenditure, accounting and auditing standards and risk management and internal control. Improvements in these areas would be of great benefit to business.

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UNCAC Convention Articles 9 (excerpted) and 10

Article 9

Public procurement and management of public finances

Each State Party shall, in accordance with the fundamental principles of its legal system, take the necessary steps to establish appropriate systems of procurement, based on transparency, competition and objective criteria in decision-making, that are effective, inter alia, in preventing corruption …

Article 10

Public reporting

Taking into account the need to combat corruption, each State Party shall, in accordance with the fundamental principles of its domestic law, take such measures as may be necessary to enhance transparency in its public administration, including with regard to its organization, functioning and decision-making processes, where appropriate. Such measures may include, inter alia:

  1. Adopting procedures or regulations allowing members of the general public to obtain, where appropriate, information on the organization functioning and decision-making processes of its public administration and, with due regard for the protection of privacy and personal data, on decisions and legal acts that concern members of the public;
  2. Simplifying administrative procedures, where a p appropriate ,in order to facilitate public access to the competent decision-making authorities.
  3. Publishing information, which may include periodic reports on the risks of corruption in its public administration.”

Article 10 “Public reporting”, provides for public access to decision-making authorities and periodic reports on the risks of corruption in public administration.

Article 12 “Private sector”, calls for governments to take measures to prevent corruption in the private sector, including enhanced accounting and auditing standards, codes of conduct, prevention of conflicts of interest, restrictions on employment of former public officials, internal controls, prohibitions of off-the- books transactions and disallowance of tax deductibility of bribes. These measures would apply directly to business conduct.

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UNCAC Convention Article 12 (excerpted)

Article 12

Private sector

Each State Party shall take measures, in accordance with the fundamental principles of its domestic law, to prevent corruption involving the private sector, enhance accounting and auditing standards in the private sector and, where appropriate, provide effective, proportionate and dissuasive civil, administrative or criminal penalties for failure to comply with such measures.

3. In order to prevent corruption, each State Party shall take such measures as may be necessary, in accordance with its domestic laws and regulations regarding the maintenance of books and records, financial statement disclosures and accounting and auditing standards, to prohibit the following acts carried out for the purpose of committing any of the offences established in accordance with this Convention:

  1. The establishment of off-the-books accounts;
  2. The making of off-the-books or inadequately identified transactions;
  3. The recording of non-existent expenditure;
  4. The entry of liabilities with incorrect identification of their objects;
  5. The use of false documents; and
  6. The intentional destruction of bookkeeping documents earlier than foreseen by the law.

4. Each State Party shall disallow the tax deductibility of expenses that constitute bribes, the latter being one of the constituent elements of the offences established in accordance with articles 15 and 16 of this Convention and, where appropriate, other expenses incurred in furtherance of corrupt conduct.”

Article 13 “Participation of society”, requires governments to promote active participation of individuals and groups outside the public sector in the fight against corruption. This includes business as well as NGOs. Article 13 calls for ensuring that the public has effective access to information and protects the freedom to publish and disseminate information concerning corruption. Anti-corruption bodies are required to provide access for reporting, including anonymously, of corruption offences.

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Article 14 “Measures to prevent money laundering”, calls for a comprehensive regulatory and supervisory regime for banks and other financial institutions to deter and detect all forms of money laundering.

The foregoing preventive measures provide an invaluable foundation for strengthening government capability to combat corruption, strengthening private participation and enhancing corporate integrity programs.

The need for an effective monitoring programme

The most serious cloud hanging over the future of UNCAC is the unresolved controversy over monitoring of government implementation. Experience has shown that follow-up monitoring is essential to make anti-corruption conventions work. It is particularly important for a convention as complex as UNCAC.

The need for monitoring was debated during the 2002 Vienna negotiations that led to the adoption of the Convention. There were strong proponents of monitoring. However, many developing countries objected because they feared that UNCAC monitoring would become another process for criticizing them. A number of industrialized countries expressed reservations about the cost and effectiveness of UNCAC monitoring and about duplication with monitoring programmes of OECD and regional conventions. When it proved impossible to reach agreement, a decision on monitoring was deferred until the First Conference of States Parties (CoSP), to be held one year after UNCAC became effective.

The First CoSP, held in Jordan in December 2006, agreed that “effective and efficient review of implementation of the Convention … is of paramount importance and urgent”. A working group was established to develop proposals for a review mechanism. The working group failed to develop proposals for action at the Second CoSP, held in Indonesia in early 2008. Leaders of the G77 continued to express reservations. The working group is expected to present proposals at the Third CoSP, to be held in Qatar in late 2009.

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Business objectives for UNCAC

Declaration by the business community to the Conference of States Parties to the United Nations Convention against Corruption (excerpted).

“No tangible progress will be achieved without a systematic and continuous review mechanism to ensure the effective implementation of the Convention by all signatory countries. The Conference of States Parties is urged to promptly establish a full monitoring program, based on self-evaluation and peer reviews, before the momentum created by the adoption of UNCAC is allowed to fade out. Such a program, which will require a strong secretariat and dependable funding from the UN budget, should be effective as from 2007 and begin with a survey of implementation and technical assistance needs …

An open and transparent review mechanism should help focus attention on corruption issues which are pervasive in all segments of society. Participation by business in the monitoring of UNCAC will be essential to provide a c o m p l e t e picture of country progress in implementing and enforcing the Convention. It also gives an opportunity for non-governmental stakeholders who are directly affected by corruption, such as the business community, to press for action when governments are lagging and to raise concerns about potential abuse of UNCAC provisions.”

Surveys of implementation conducted by UNODC, based on self-assessment by governments, have shown that implementation has been uneven, varying between regions and for different UNCAC provisions. Without monitoring, UNCAC will be an erratic patchwork quilt, with governments picking and choosing provisions that are easy to implement and ignoring the rest. Unless there is consistent global implementation, important UNCAC programmes cannot achieve their objectives. For example, asset recovery can be circumvented as long as some banking centres fail to implement UNCAC’s asset recovery provisions. Stolen funds will flow to countries with little or no implementation, particularly those that retain banking secrecy laws.

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The key elements necessary for a sound monitoring program include the following:

Management responsibility: The Conference of States Parties should be responsible for establishing policies and providing oversight. However, responsibility for the day-to-day management of the monitoring program should be assigned to UNODC, the UNCAC Secretariat. Because the CoSP meets only every two years, and decisions require consensus by more than 120 parties, CoSP management of the monitoring process would be completely unwieldy.

Flexible administration: The monitoring program should be flexible recognizing that some countries and some UNCAC articles will need more time for implementation than others. A range of review methods should be used, including self-assessment surveys, expert and peer reviews and country visits. The review process should be allowed to evolve over time.

Adequate and dependable funding: The Secretariat will require strong leadership and a small technical staff. Because monitoring must be a long-term programme, adequate and dependable funding will be required. The funding should come from the regular UN budget.

Board of experts: A board of distinguished experts in the major fields covered by UNCAC should be established to provide technical advice and assistance to the CoSP and the Secretariat. This would strengthen the quality of monitoring reviews, enhance its objectivity and promote public credibility.

Transparency and non-governmental participation: Monitoring reviews should be transparent with opportunities for participation by the private sector and civil society. Such participation will provide essential inputs on the status of government anti-corruption programmes. A transparent process will have much greater credibility than reviews conducted behind closed doors.

Cooperation with other monitoring programmes: Arrangements for cooperation should be established between the UNODC and the monitoring organizations of the other anti-corruption conventions. This is necessary to avoid duplicative reviews, because most UNCAC parties are also parties to other conventions.

Technical assistance: Many developing countries will require technical assistance to implement UNCAC provisions. Such assistance will be essential for the success of the Convention. While many donors already fund governance programmes in developing countries, greater assistance and increased coordination will be needed. Assurance of adequate technical assistance is also necessary in overcoming G77 concerns that monitoring will result in unfair criticism.

Until a monitoring program with the foregoing elements is established, UNCAC will not achieve the momentum necessary to reverse the growth of global corruption, and the objective of establishing an effective global framework for combating corruption will recede into the indefinite future.

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Conclusion

It should be clear, even from this brief overview, that UNCAC is crucially important. Making UNCAC work will take time and effort. Establishing an effective follow-up monitoring programme is the most critical step. UNCAC is unique in providing a comprehensive global framework for combating corruption. That in itself provides enough incentive to justify the efforts required.

Fritz Heimann is also the author of Chapters 1, 3 and 14 in this handbook