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Global leaders: Drago Kos, Chair of the OECD Working Group on Bribery

After the Panama Papers leak and the Anti-Corruption Summit in London in May, Drago Kos is in the hot seat when it comes to enforcing the OECD Anti-Bribery Convention among signatory countries. In this interview, conducted for the IBA by Jonathan Rugman of the UK’s Channel 4 News, Kos discusses international efforts to tackle bribery and corruption by governments, the role of the private sector, and the offshore world.

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Jonathan Rugman (JR): Let’s start with the OECD Anti-Bribery Convention, which came into force in 1999. The Convention’s great success is that bribery is now a crime in 41 countries, but how do you balance that with the fact that 24 of those countries have yet to conclude a single foreign bribery enforcement action?

Drago Kos (DK):This is a question that burdens me all the time. You could understand that some smaller countries might still be without any meaningful investigations on cases of foreign bribery, but if you have the likes of Japan, Russia, Argentina and Brazil without any investigations, this means they are not taking the task and their obligations seriously. I must say, though, that things are changing for the better, and I hope the next report on the implementation of the Convention will [show this]. Not only is the number of investigations going up, but also prosecutions and adjudications.

JR: It’s about 390 investigations at the moment, with ongoing prosecutions against 142 individuals and 14 companies.

DK:Yes, and they simply have to result in outcomes – either in settlements between prosecutors or courts and the defendants, or in sentences.

JR:You’re starting Phase Four, which is the latest phase of monitoring to make the Convention produce results. Can you tell us what is different now?

DK: One thing will definitely change: we are trying to engage the private sector more in the fight against bribery, especially foreign bribery. We can do this in two ways, through continuing to increase the pressure and, even more difficult, by trying to engage them as partners. This means that lawyers in big companies will get more and more engaged in what they are already doing in establishing compliance systems. But this time, not under the threat of being sanctioned if they’re not doing it, but through positive motivation – if they develop effective compliance systems, if they engage properly with law enforcement authorities, they will get rewarded.

JR: How will they be rewarded for being cooperative in that way?

DK: Until now, companies have been rewarded only when the problem is already there. So in the US, you have federal sentencing guidelines according to which companies will be sanctioned mildly if they do cooperate. In the UK and Italy, for instance, an effective compliance system and cooperation are a full-fledged defence. But you want companies to be rewarded before there are possible cases of corruption identified. For example, having an effective compliance system would be a condition of taking part in public procurement in the countries, or would earn additional points in tenders.

JR: If you are, say, a lawyer who is on the board of a shell company who is treading a fine line, should you be more nervous now?

DK: Oh yes. After the efforts of the last year, all the beneficial owners in the world generally will be publicised somewhere; if not for the general public, at least for the professional public. Registries on real beneficial owners will be developed and appropriate authorities will have full access to them. Also, efforts in the area of anti-money laundering and tax evasion are advancing, with the exchange of data between countries reaching completely new dimensions.

JR: The OECD Secretary-General has described the Panama Papers leaks as showing how much progress has been made. Whereas a lot of people watching the story unfold will think they just expose how bad the problem is.

DK: We discussed the Panama Papers in the Working Group I chair. We’ve identified four major foreign bribery cases in the Papers, and two of them we already had on our list of cases, but we didn’t know that they were linked to Panama. So it has given us a lot of work and, of course, a lot of ammunition.

JR:What is your view on the offshore world in general in the fight against corruption?

DK: It is part of the problem. When –let’s call them the bad guys –when they realised how well offshore companies can be used for different illegal things in addition to tax evasion, money laundering, hiding the real owners of companies, they started to misuse offshore companies also for foreign bribery – adding another layer to the problems we are facing.

On the private sector:

We cannot fight corruption any more without engaging the private sector. It is our indispensable partner

JR: Many of these offshore jurisdictions are kept thriving by law firms, which puts them in a very difficult position. They would say, ‘we’re not knowingly breaking the law, we’re just using the jurisdiction’.

DK: Yes, of course, and this was clear from the beginning. It was simply using the existing legal systems, which were then misused by individuals or companies that realised how well those structures can be used for other purposes that are not always strictly legal.

JR: That brings us on to the Anti-Corruption Summit in London in May 2016, where the British offshore tax havens were notable by their absence. Is the British government applying enough pressure on these territories and dependencies to disclose more information?

DK: The London summit was a positive development, but we could hear some of the experts there clearly saying to the UK: why are you criticising other countries if you have a problem in your backyard? So the UK will simply have to do something. This is an area where, when countries don’t want to do something or don’t know how to, they always look for excuses – they look at somebody else and say, ‘well, if they don’t do it, why should we?’

JR: But the breakthrough would appear to be that 29 countries, including the Cayman Islands, Jersey, Bermuda and the United Arab Emirates, have agreed to share information on beneficial owners between their governments.

DK: The summit was a major breakthrough because for years we didn’t see any meaningful initiatives from any country, especially not such an important country as the UK, in the area of anti-corruption. But after the pledges, the critical time comes, which is the implementation and fulfilment of promises. This doesn’t always go so smoothly.

JR: Why do you think there isn’t more pressure from the UK on those territories?

DK: I simply don’t know. Maybe the tools that the UK has at its disposal do not suffice enough to press those countries or territories to do something. I can remember in my previous functions, we wanted the UK to extend the enforcement of other conventions to some territories, but it was simply no-go.

JR: How can we control the flow of illegal money to offshore jurisdictions? We’ve talked about sharing registers of beneficial ownership, but what else can be done?

DK: The anti-money laundering system in all countries of the world, thanks to the Financial Action Task Force on the operational side, is organised in a way that all such transactions have to be registered. But registering something is one part; controlling and monitoring it is different.
If you were to try to stop those transactions,
I think the whole world economy would slow down. After those transactions have been registered, the institutions simply have to deal with them.

On whistle blowers:

We have to inform all our citizens of what will happen, because all of them are potential whistleblowers

JR: So it’s the law enforcement end that needs to change once you’ve changed the law?

DK: Yes, but that’s another problem. The simple fact that the money’s going to offshore territories and countries is not enough for law enforcement to start investigating. There has to be a predicate offence, meaning that some illegal things would have to happen before investigations can start.

JR: Where should the priority be in the Phase Four cycle of evaluations?

DK: Three words: enforcement, enforcement, enforcement. The final goal of our work is that we enforce the Convention, meaning that we investigate, prosecute and adjudicate individuals breaching the Convention. We’ll invest major efforts in this area.

On national enforcement:

It’s difficult to convince a country where companies are earning hundreds or even billions of dollars and euros by not respecting the standards

JR: Transparency International (TI) gave the London summit a pretty good rating, but they do say that registers of beneficial ownership need to be public. Is the public disclosure of beneficial ownership something that you too will insist on?

DK: Yes. But we have to realise that we live in the real and practical world, where things are changing, as I tend to say, by millimetres. TI says registers have to be published and accessible to the general public, but this will not happen today or tomorrow. There are some countries that have published completely public registers, not all of them, but we are slowly progressing.

JR: We’ve focused a lot on government, but what about business?

DK: We cannot fight corruption any more without engaging the private sector. It is our indispensable partner in the fight against foreign bribery.

JR: You must, in your job, meet a lot of world leaders and think to yourself, ‘it’s great they’re here but everything must be in the delivery, not just in the language’.

DK: If you want to pretend that you’re doing something – and we have some countries in the world that are pretending that they are fighting corruption – it’s very simple to change your legislation. It’s very easy to establish institutions saying they will fight corruption. But when it comes to the deeds, this is the real proof that their intentions are real, serious and genuine. And this is sometimes missing.

JR: Only about two per cent of all reported instances of cross-border bribery and corruption have come from whistleblowers, which means that, if people are speaking out, it’s leading to very few cases.

DK: While whistleblowing in the developed part of the world is heavily anchored in the consciousness of the people as something good, for the rest of the world, whistleblowing is bad, because it used to be that blowing the whistle meant cooperating with, say, secret services for political reasons; it meant snitching. So first we have to change the perception of people in those countries.

JR: In terms of enforcement, how important is it that countries that are party to the Convention have similar penalty regimes?

DK: All the conventions are asking for penalties that have to be effective, proportionate and dissuasive. In different countries, this can vary significantly, but of course they have to fulfil those conditions. What we are trying hard to do is put a lot of emphasis on the sanction regimes of countries. And we’ve had many, many regulations already for countries, that they had to increase the penalties – either the imprisonment or the fines.

JR: Is the long-term goal of the OECD for
anti-bribery to be part of companies’ business strategy and a norm for governments, rather than maintaining an endless focus on enforcement?

DK: Yes, the dream scenario is that fighting bribery would be part of the business strategies of all companies, part of policies of all governments, because then enforcement will slowly fade away. Nowadays, we speak less and less about fighting corruption; we speak more and more about enhancing integrity – and this is our final goal. Companies and individuals have to understand that work or functioning for companies without bribery is better for their economic results, it’s better for their salaries, it’s better for their lives.

On implementing the Convention:

We have some countries that ratified the Convention ten, 14, 15 years ago, and they still have not implemented it in their own legislation

JR: Given that so much of what businesses do is about self-enforcement, self-referral, how is that going to work?

DK: We cannot send a police officer or a prosecutor into every company. The companies can do the bulk of the work by themselves – if they feel incentivised. First of all, what is the biggest incentive? If the management boards understand that honest business operations are also economically good, if they understand that if they fight corruption they will not only get economically better results, but also have advantages when they try to get contracts signed with governments through tendering procedures, then they will do it by themselves. This is worth more than engaging tens of thousands of police officers around the world.

On the London summit:

The summit was a major breakthrough. But after the pledges, the critical time comes, which is implementation. This doesn’t always go so smoothly

JR: And whistleblowing you would like to be more effective, and you’ve talked about a culture change. But is there also a lack of clarity on legislation that is supposed to protect whistleblowers?

DK: It is lack of clarity, but also lack of knowledge. If the legislation is not clear and simple, potential whistleblowers will not do it because they will be unsure what will happen afterwards. We have to inform all our citizens of what will happen, because all of them are potential whistleblowers.

JR: When you think of the refugee crisis, the trafficking of people, the financing of ISIS, you are talking about bribery and corruption in
non-state entities. What is the OECD’s role here?

DK: Corruption in this area happens all the time. How can people bring weapons, heavy weapons, ammunition into countries? How can they cross the borders with it? But by fighting bribery and corruption, we are also hopefully cutting some links which enable it.

JR: Another huge global problem is climate change – do you see that in some way connected to bribery and corruption?

DK: Bribery always happens in the areas where companies can earn or lose a lot of money. Corruption related to environmental problems is very important because companies can really lose a lot of money. Some countries have specialised law enforcement agencies dealing with environmental problems, and they mainly deal with corruption cases.

JR: You’ve said that no country [signatory of the Convention and therefore a member of the OECD Working Group on Bribery] could seek to escape censure because the other countries had the power to enforce it. But with Brazil, could you imagine a case of suspension from the Working Group?

DK: We have discussed this issue. If you have a country which simply does not want to implement our recommendations – basically, which means it’s not following the Convention – the question is what to do then. The issue of suspension is not clear yet and I really hope we will never get there. But if that was the case, and I’ll be very frank, Brazil is not the first one on the list.

On business compliance:

Lawyers in big companies will get more engaged – if they develop effective compliance systems, if they engage properly with law enforcement authorities, they will get rewarded

JR: Which one is then?

DK: That I cannot tell you. We have some countries that ratified the Convention ten, 14, 15 years ago, and they still have not implemented it in their own legislation.

JR: Which part of the world are we talking about? If you don’t want to name the country, can you at least give the region?

DK: It’s one of the G8 countries – as simple as that – which is so painful.

JR: What about Argentina? Its President was directly implicated through the Panama Papers. What needs to change in the country?

DK: Argentina is very high on our agenda. We went there to warn the government that it really had to do something. I must say, the reaction of the government was extremely positive. They really have to do some major things – adopting new legislation, changing the practical approach – so we really hope that they will stick to what they have pledged.

JR: Should the OECD Convention be updated? To encourage integrity in both the public and the private sectors, could there be more wording to enforce that?

DK: My personal view is yes, we have to amend, to upgrade or enhance the text of the Convention. But if you open the Convention, there’s always a risk that you will lose what is there already. The Secretary-General of the OECD has started an initiative with the aim of making the legal framework of the OECD much clearer, which means that we can enhance and develop new legal texts.

JR: Going back to whistleblowing, we’ve talked about law being clearer, but what else can we do to protect whistleblowers?

On public registers:

Things are changing by millimetres. TI says registers have to be published and accessible to the general public, but this will not happen today or tomorrow

DK: Parts of our reports are also what we call recommendations, but countries have to follow them otherwise they face a non-compliance procedure. And we have devoted – and will continue to devote – a lot of attention to whistleblowing and really insist not only on adoption of the laws, but also on the practical implementation of whistleblowers’ proceedings.

JR: Globalisation only goes so far. Jurisdictions remain separate and, although products may be sold all over the world, the investigations have to be separate quite often.

DK: When we speak about foreign bribery investigations, sometimes I have the feeling we are speaking about different universes, different spaces, because the countries are so far away from each other.

JR: So you feel your work is cut out, that those who benefit from free trade are less inclined to make law across borders?

DK: It’s difficult – and I’m not referring to any specific country now – to convince a country where companies are earning hundreds or even billions of dollars and euros by not respecting the standards that the rest of the world has submitted to.