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ECAs fail to agree on enhanced anti-bribery Action Statement

(ECAW, Paris, 9 December 2005) ECA Watch has learned that OECD brokered discussions on how to improve Export Credit Agency procedures on fighting corruption broke down without consensus in mid-November. 

The ECA-Watch network has written to the OECD to express its extreme disappointment at the breakdown in discussions. This breakdown occurred, according to sources close to the discussions, because particular OECD Member States, including Japan and Germany, blocked proposals for improvements to ECA practices on combating bribery. 

G8 countries in July 2005 committed to strengthening anti-bribery requirements for companies applying for export credits and credit guarantees.  (1) The Commission for Africa specifically highlighted the role that ECAs play in exacerbating corruption and weak governance structures in developing countries. The Commission recommended that ECAs improve their anti-corruption procedures by adopting and implementing measures outlined in an OECD December 2003 Best Practices on Combating Bribery paper.(2)

Weak anti-bribery policies within OECD ECAs seriously threaten the reputation of export credit agencies. More importantly, corruption in Export Credit Agency supported projects leads to unproductive investments in poor countries, overpriced products which do not represent value for money, and ultimately increased debt burdens for such countries. ECAs disburse some US$85 billion a year in medium and long-term credits and another US$15 billion in insurance, guarantees and interest support, compared with OECD official aid (ODA) of US$67 billion and US$60 billion in World Bank and Multilateral Development Bank disbursements.(3)

During the OECD discussions, specific proposals were made by the USA to require exporters, applicants and affiliates to report to ECAs whether they have been convicted, charged or had any penalties including disbarment against them with regard to corruption. The proposals also called for disclosure of agent's commission fees to be a requirement for ECA support and for certification by ECA clients that they have done due diligence on their agents. Finally, the proposal called for the upgrading of the OECD's Action Statement on Combating Bribery in ECA projects to an OECD Recommendation. While some countries, such as Belgium, proposed weaker measures for improving ECA procedures on bribery, others, including Japan, opposed any changes at all. 

The failure of rich country export credit agencies to tackle corruption is a blow to the UK's Africa-focused presidency of the G8, and to the G8's credibility on tackling corruption. It is also a blow to the OECD's Export Credit Group, which has been pushing for improvements in Export Credit Agency procedures on combating corruption for over two years 

While no dates have been fixed, it is expected that further OECD brokered discussions and negotiations will take place between now and April 2006. 

An outline of some elements of the OECD discussions as gleaned by ECA Watch members in various countries. 

Overall:

• The USA wants the renegotiated text to be moved from an "Action Statement" to a "Recommendation", which would require that it be signed by the OECD Council and not just the Export Credit Group, giving it a higher level of political commitment.  Most countries are said to support this proposal; 
• On the content of the text, a so-called "watered down" proposal is apparently supported by a block consisting of Germany, Belgium and the Czech Republic; 
• The UK, The Netherlands, Canada and USA are thought to be a more progressive block, though with variations on specific provisions; 
• Japan is said to be the most hostile and resistant to any change whatsoever; 
• General arguments against strengthening the Action Statement tend to follow along the lines that "ECAs are not investigating agencies", while arguments in favor say that strengthening the role of ECAs in looking into corruption is part of "prudent due diligence to reduce risks" associated with projects; 
• A new OECD Export Credit Group document has been tabled in an attempt to reflect the various inputs on the revision of the Action Statement on Bribery and Officially Supported Export Credits;

• The USA wants exporters, applicants, affiliates who have been convicted, charged, subject to any penalties, debarred or had any action taken against them with regard to corruption to be required to report this to the ECA. This is a more progressive scope of entities covered than many countries want; 
• The USA does not call for required disclosure to ECAs when a corruption investigation is taking place, rather it supports a weaker requirement to report to ECAs only when legal actions have been taken after a finding of corruption (e.g., charges, convictions, penalties); 
• The USA wants ECAs to do enhanced internal due diligence if they learn that any such legal actions have been taken against exporters, applicant, affiliates, etc., but not to enhance their due diligence if they learn that there are suspicions, allegations, or investigations that could potentially lead up to convictions.  Given the slow motion of various legal systems, convictions are likely to occur long after ECAs perform due diligence. 
• Germany, Belgium and the Czech Republic call for ECAs to require a declaration to be signed that there be no bribery associated by a project applicant and/or exporter for ECAs to exert appropriate bribery controls, but without more specifics.  If any credible evidence of bribery is obtained it should be reported to the appropriate investigative arm of the respective government and that's all, rather than to do more internal due diligence on the matter; 
• ECGD (UK) requires companies to certify that they have done due diligence checks on joint venture partners. It doesn't directly require that they have done due diligence on agents, but it does implicitly include agents in their anti-bribery warranties, when it says "neither we nor anyone acting on our behalf has engaged in corrupt activity". 

• The UK apparently wants all agent's commissions to be disclosed; 
• The Netherlands apparently wants all agents commissions over a certain size to be disclosed (4.5 million Euro or 5% of transaction size) 
• The USA wants no such threshold, but says that agents commissions only will be required to be disclosed under certain circumstances, and that clients should be required to certify that they have done appropriate due diligence on agents; 
• The OECD Secretariat has apparently proposed that only under certain categories of higher risk projects and in certain higher risk countries, that there be a requirement for agent's commissions to be disclosed 

• The UK policy is strongest, which is that if an exporter has been convicted of corruption, or debarred by the World Bank, this is 'prima facie' grounds for refusing further ECA cover to that company. 
• Canada and Switzerland propose (and the USA supports) that ECAs establish flexible procedures on debarment, including allowing for companies to "clean house" when corruption convictions have occurred, such as to establish procedures to fix the problem, firing those involved, etc.  Supposedly there would be a probationary period and after that, if actions have been taken to rout out the problem, business as usual could occur.  It does not appear that this approach would actually result in debarment, rather it can be seen as a way to avoid debarment. 

(1) G8 Summit Declaration on Africa, p.6, article 14(h) http://www.fco.gov.uk/Files/kfile/PostG8_Gleneagles_Africa,0.pdf

(2) http://www.eca-watch.org/problems/corruption/CoA_re_ECAs_and_Corruption_11mar05.htm

(3) IMF, Officially Supported Export Credits in a Changing World, February 3, 2005

(4) http://www.jus.uio.no/lm/un.against.corruption.convention.2003/13