JICL

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VOLUME
4:1
JUNE 2017
1-131
  • DEMAND SIDE OF CORRUPTION AND FOREIGN INVESTMENT LAW

    Austin I Pulle
Abstract

The United Nations Convention against Corruption, the regional anti-corruption conventions, the US Foreign Corrupt Practices Act and the laws against foreign bribery passed pursuant to the OECD Convention on Bribery have not operated to substantially reduce foreign corrupt practices. The “design flaw” in these instruments and laws is that they abandon the model of domestic anti-bribery laws that target both the supply and the demand side of corruption and instead focus only on the supply side of corruption. Shielded from international accountability, corrupt officials in the demand side continue to extort bribes from investors and other businessmen who wish to operate in their countries. Arbitration decisions that consider corruption in the context of investment disputes also leave unsanctioned corrupt conduct on the part of host country officials. While foreign policy objectives of capital exporting states would discourage and prevent a full scale attack on supply side corruption, less controversial measures to discourage and even punish demand side corruption should be established and enforced if foreign commercial bribery is to be meaningfully addressed.

Keywords
foreign corrupt practices; foreign bribery; bribery and foreign investment; investment protection treaties and bribery; demand side corruption
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Introduction

The national and international regimes that attempt to deter and control overseas commercial bribery have failed to prevent foreign officials from demanding and receiving massive bribes from foreign investors and other business persons. The legislatures of the major capital exporting countries must address this failure by amending their foreign anti-bribery laws. Likewise, the governments of these countries need to negotiate much needed changes that deal with demand-side bribery in their international investment agreements (IIAs).

The alarming spike in foreign commercial bribery necessitates such changes. The serious flaws in national laws that attempt to prevent foreign commercial bribery only by punishing investors and others doing business across borders hinder efforts to combat bribery as a worldwide phenomenon.

Host country foreign anti-bribery laws, by ignoring the demand side of corruption which domestic bribery laws invariably criminalise, result in enforcement actions that are unbalanced and are also neither rational nor effective in combating foreign commercial bribery. First, these laws present their foreign investors with a Hobson’s choice. In effect, enforcers of such laws tell their nationals: “either pay the sum demanded by the foreign official and invest in the host country thereby exposing yourself to an expensive and harassing local investigation with possibly heavy criminal penalties at home or resist paying the bribe and forego a business opportunity to increase your shareholder value and contribute to the development of the host country”.

Second, the data contained in the Corruption Perceptions Indices (CPS),1 released by Transparency International, the best-know anti-corruption civil society group, show that these foreign bribery laws have little impact on countries that are described as “highly corrupt”. Corruption appears to be rife and corrupt payments even by companies, from countries which are regarded as the least corrupt and punish overseas bribery, continue to be made. In other words, the main objective of anti-foreign corrupt practices legislation and international treaties that condemn bribery in the strongest terms, which is to eradicate or at least drastically reduce foreign commercial bribery, remains unrealised. Third, national foreign anti-bribery laws contain no meaningful deterrent against host country kleptocrats. These kleptocrats continue to flourish, living a life free of accountability or retribution, and continue to inflict political violence on host country populations. Fourth, where honest investors refuse to pay bribes, their less scrupulous competitors replace them, and the results are often overpriced products/services, sub-standard performance and an oligopolistic economy.2 Finally, in a typical highly corrupt but resource-rich host country, the population, despite being the real owners of the abundant natural riches in their homeland, live in squalid poverty; democracy and human rights are undermined if not destroyed; and their masters plunder the national heritage from the true owners.