Abuse of Functions
Abuse of functions refers to a public employee or public office holder that is doing something which is illegal or something that the official has no legal authority to do, in order to obtain a personal economic benefit or cause an illegal damage to others. The UNCAC addresses the abuse of functions at art. 19.
One sort of abuse of office is the misuse of information. That is, if an official, in reliance on information which she/he has acquired by virtue of her/his office, speculates on the basis of this information or acquires a pecuniary interest in any property, transaction or company which might be affected by such action or information or helps another to do any of these actions.
Person (natural or legal) empowered to act for or represent another person or party.
The OECD Convention is very clear on the use of agents, and prohibits the use of bribes through agents:
'Each Party shall take such measures as may be necessary to establish that it is a criminal offence under its law for any person intentionally to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official, for that official or for a third party, in order that the official act or refrain from acting in relation to the performance of official duties, in order to obtain or retain business or other improper advantage in the conduct of international business.'
Aside from the case in which a company has knowingly used agents to channel bribes, companies can be held liable for acts of corruption committed by their agents if they did not react to corrupt acts by their agents which they knew about or which they should have known about given the presence of clear signs of those acts taking place. Under other legal theories, companies are liable for corrupt acts committed by their agents if they did not have 'adequate procedures' in place to prevent such corrupt acts. Due diligence in the choice of agents is therefore of the utmost importance for companies to avoid criminal liability connected with acts of those third parties.
Blackmail is the crime of threatening to reveal potentially damaging information about a person to the public, a family member, or associates unless a demand made upon the victim is met. This information is usually of an embarrassing, socially damaging, and/or criminally incriminating nature. Blackmail is similar to extortion. The difference is that extortion involves an underlying, independent criminal act, while blackmail does not.
Breach of Trust
Breach of trust refers to abuse of power, or failure (whether or not such failure was deliberate, dishonest, or negligent) to carry out the general and fiduciary duties of a trustee. Trustees are personally liable for any loss to the trust caused directly or indirectly by the breach, and must hand over (to the trust) any profit made from the breach (whether or not the trust suffered any loss).
Definition from the OECD Convention: 'To offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official, for that official or for a third party, in order that the official act or refrain from acting in relation to the performance of official duties, in order to obtain or retain business or other improper advantage....'
Whereas the OECD Convention mandates the criminalisation of bribery of foreign public officials, all other international anti-corruption conventions mandate the criminalisation bribery of both domestic and foreign public officials. Normally, foreign bribery is only prohibited in a business context, while domestic bribery is prohibited altogether.
Bribery occurs during an interaction between two parties. Both the giving and the receiving party of the bribe commit a crime. Refer to the definition of 'Supply Side/Active Bribery' and 'Demand Side/Passive Bribery' respectively below.
A cartel is an agreement (formal or informal) among competing companies to coordinate prices, marketing and production. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion is to increase individual members' profits by reducing competition.
Collusion is an agreement, usually secretive, which occurs between two or more persons to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage. It can involve an agreement among companies to divide the market, set prices, or limit production. It can involve wage fixing, kickbacks, or misrepresenting the independence of the relationship between the colluding parties.
Conflict of Interest
A conflict of interest exists when someone, such as a public official, has competing professional obligations or personal or financial interests that would influence the objective exercise of her/his duties.
Although there are several conventions dealing with corruption and bribery, there is no single globally accepted definition of corruption and bribery.
Corruption is defined by Transparency International, the leading international NGO in fighting corruption, as 'the abuse of entrusted power for personal gain.'
Corruption can also be differentiated in terms of what can be called 'true corrupt intent' and 'necessary corruption', which occurs in order to get things done. Corruption in terms of true corrupt intent implies bribery in order to obtain a service to which one is not legally entitled. In contrast, necessary corruption implies bribery in order to obtain a service to which one is legally entitled. Facilitation payments would fall under this latter category of corruption.
The main forms of corruption are bribery, embezzlement, fraud and extortion.
Corruption is traditionally defined as a practice involving a public official abusing her/his position. However, corrupt practices can also occur within the private sector when a private sector employee abuses of her/his position in the private entity for personal gain. Private (also called commercial) bribery is only addressed by a limited number of international conventions.
Cronyism is a form of favouritism shown to close friends. A typical situation of cronyism would be the political appointment to office of a friend without regard for her/his qualifications.
Debarment/blacklisting entails the exclusion from public contracting including public procurements.
The use of debarment instruments is growing worldwide. Debarment is considered by authorities to be an effective preventive instrument. Debarment is an administrative sanction (not criminal).
Recently, the European Union adopted a new procurement directive which makes debarment of companies and persons convicted of bribery compulsory everywhere in the European Union. See Other Anti-Corruption Initiatives.
Debarment procedures are also found in several international financial institutions and most national states' procurement laws.
Deception is an act to propagate beliefs that are untrue or not the whole truth (as in a half-truth or omission).
Demand Side/Passive Bribery
Definition from UNCAC Art. 15(b): 'The solicitation or acceptance by a public official, 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'
Typical forms of demand side bribery are often related to:
- Denial of goods or services (look for more specific analysis in Country Profiles)
- Access to utilities
- Access to licences
- Legal sanctions
- Physical threats
- Lost opportunities
See also 'facilitation payments'.
A donation is understood as a monetary or non-monetary gift to a fund or cause, typically for charitable reasons.
Donations to charities or political parties are not directly covered by the OECD Convention (see Grey Area Questions). Many companies address the use of donations in their codes of conduct.
It is clear that if a donation is given with the purpose of giving a company an undue advantage, it will be considered as bribery by most authorities.
Most countries have national rules for political party financing, including rules for disclosure. Many companies address the use of political donations in their codes of conduct.
There are numerous examples of companies being confronted with demands for donations and political party contributions. It is common practice in many countries that political parties ask for donations. Such demands can be interpreted as extortion if accompanied by an embedded threat. It can be difficult, and in most situations impossible, to prove that this is the case. Therefore, it is important that companies have clear policies regarding donations.
Embezzlement is the fraudulent appropriation of money or property by a person entrusted to safeguard the assets in another's interests. Embezzlement can be committed by a person entrusted with private or public resources.
Extortion is the unlawful use of one's position or office to obtain money through coercion or threats. One example would be when customs officials request undue 'customs duties' from importers as a condition to clear their goods.
Facilitation payments are a form of bribery made with the purpose of expediting or facilitating the performance by a public official of a routine governmental action and not to obtain or retain business or any other undue advantage.
Facilitation payments are typically demanded by low level and low income officials in exchange for providing services to which one is legally entitled without such payments.
A distinction is generally made between facilitation payments and outright bribery and corruption. In some countries, it may be considered normal to provide small unofficial payments under certain circumstances, although this practice is illegal in most countries.
Facilitation payments are one of the unsettled questions in the OECD Convention, meaning that the convention does not establish them as an offence:
'Small "facilitation" payments do not constitute payments made "to obtain or retain business or other improper advantage" within the meaning of paragraph 1 and, accordingly, are also not an offence. Such payments, which, in some countries, are made to induce public officials to perform their functions, such as issuing licenses or permits, are generally illegal in the foreign country concerned. Other countries can and should address this corrosive phenomenon by such means as support for programmes of good governance. However, criminalisation by other countries does not seem a practical or effective complementary action.'
In 2009 however, the OECD Council issued a recommendation to its member countries, where it urged them to reconsider their approach to the issue and to encourage their domestic companies to prohibit the use of facilitation payments.
Some countries i.e. the United Kingdom and Germany criminalise facilitation payments abroad. Other countries, such as the United States, do not prohibit such payments abroad and have no upper limit for them, although only very low amounts of money would be regarded as facilitation payments.
The UNCAC prohibits facilitation payments.
The legal status of facilitation payments differs from country to country: see Country Profiles.
Fraud is a criminal offence in most jurisdictions. It involves the use of deception, trickery and breach of confidence to gain some unfair or dishonest advantage.
In the context of corruption, a gift is a financial or other benefit, offered, given, solicited or received with an obligation to provide any benefit in return.
Gifts and hospitality may be corrupt, may be used to facilitate corruption, or may give the appearance of corruption. Gifts may include cash or assets given as presents, and political or charitable donations. Hospitality may include meals, hotels, flights, entertainment or sporting events.
Gifts are not directly covered by the OECD Convention (see Grey Area Questions).
Many companies cover the use of gifts in their codes of conduct. The general tendency is that companies state that gifts should be identifiable and only of nominal value if given in the name of the company. Some companies also state that they prohibit gifts to employees, and that employees must not accept gifts, apart from small gifts in special situations, such as anniversaries.
Graft is a form of political corruption in which an official acquires financial gain by dishonest or unfair means, especially through the abuse of one's position or political influence. Unlike bribery, graft does not require that the official actually provided an undue advantage; it is enough that she/he gains something of value apart from her/his official pay when doing her/his job.
Grey Area Questions
See section on Grey Area Questions.
A kickback is a bribe to obtain an undue advantage, where a portion of the undue advantage is 'kicked back' to the person who gave or is supposed to give the undue advantage. The payment of kickbacks is a corrupt practice which typically occurs in connection with a public procurement process when a company pays a procurement officer to illegally award the contract to the company in return for a bribe.
Leniency for participation in a crime is a blanket term covering either immunity from prosecution (dismissal of all charges) or reduction of penalties. Immunity from prosecution means that no charge is brought at all, i.e. the undertaking or person concerned is not punished at all for having participated in the crime. Reduction of penalties means that the penalty levied against the undertaking or person concerned is reduced (e.g. in the case of a company self-reporting bribery).
Money laundering is a process whereby the identity and origin of illegally obtained money, such as bribes, are concealed or disguised. The objective of money laundering is to make illegally obtained money to appear as if it comes from a legitimate source.
Nepotism is a form of favouritism shown to family members without regard to merit.
An example of nepotism is the appointment of family members to civil service, often at the expense of a more qualified person.
Patronage is a system in which political supporters are rewarded for their support, such as by being appointed to public office or receiving contracts, subsidies or other benefits.
Petty corruption refers to the everyday corruption taking place at the implementation end of public services when public officials meet the public. Sometimes it is referred to as 'routine' corruption, whereby, for instance, private importers of goods pay bribes to obtain a speedy completion of routine customs procedures, or whereby import goods with high customs duties and excise rates are classified as goods with lower rates. Petty corruption can also described as 'survival' corruption; a form of corruption which is pursued by junior or mid-level revenue officers who may be grossly underpaid and who depend on taking relatively small, but illegal, payments to feed and house their families and pay for education.
The distinction between petty corruption and facilitation payments is difficult to draw in practice. Theoretically, the difference is that petty corruption gives the person paying a bribe an undue advantage, whereas a facilitation payment only gives access to a service that would otherwise be legally provided without the payment. Generally, both practices are illegal.
Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity at a fixed price, or to maintain the market conditions so that the price is maintained at a given level by controlling supply and demand. The purpose of price fixing is to coordinate pricing for mutual benefit of the traders. The group of 'market shapers' involved in price fixing is sometimes referred to as a cartel.
Recovery of Assets
Recovery of criminal assets derived from bribery.
The UNCAC is the first global convention which establishes a total framework for asset recovery. This framework comprises, among other things, a set of rules for financial institutions known as 'know your customer', a set of articles related to court action, including civil action, confiscation and the freezing and seizure of assets.
Other provisions address the recovery of property under individual states' domestic laws and through international cooperation on confiscation. The aim is to encourage states to ensure that domestic law permits courts to order those who have committed offences established under the UNCAC to pay compensation or damages to states that have been harmed by those offences.
Further measures cover the freezing or seizure of property in a requested state once a request has been made. There is also a positive obligation placed on the requested state to take measures to identify, trace and freeze or seize the proceeds of crime.
See Transparency International's comments on this aspect of the UNCAC.
Red tape is a derisive term for excessive regulation or rigid conformity to formal rules that is considered redundant or bureaucratic and hinders or prevents action or decision-making. It is usually applied to government, but can also be applied to other organisations, such as corporations. Red tape generally involves the filling out of seemingly unnecessary paperwork, obtaining unnecessary licences, having multiple people or committees approve a decision and various low-level rules that make conducting one's affairs slower, more difficult, or both.
A company can be held liable for corrupt practices conducted by controlled companies, i.e. subsidiary companies, even if the subsidiary is located in another country than the parent company.
The OECD Convention does not expressly address the parent-subsidiary issue; however, bribes paid by a subsidiary may be subject to prosecution in the state where the parent company is based 'when the offence is committed in whole or in part in its territory.'
Bribes paid by a subsidiary in a foreign country may also be subject to prosecution in the state where the parent company is located if that state utilises nationality jurisdiction. Under the nationality jurisdiction, doctrine a state will prosecute its own nationals (natural persons or companies) for acts committed entirely abroad.
Parents can be held liable for corrupt acts of subsidiaries if parents knowingly used subsidiaries to channel bribes or if they did not react to corrupt acts of their subsidiaries which they know about or which they should have known about given the presence of clear signs of those acts taking place. Under other legal theories, parents are liable for corrupt acts committed by their subsidiaries if they did not have 'adequate procedures' in place to prevent such corrupt acts.
Supply Side/Active Bribery
UNCAC Art. 15(a): 'The promise, offering or giving, to a public official, 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.'
The typical forms of supply side bribery, apart from direct payments, are:
- Gifts and travels
- Various donations and contributions to political parties
See 'facilitation payments'.
Trading in Influence/Influence Peddling
Trading in influence occurs when a person who has real or apparent influence on the decision-making of a public official exchanges this influence for an undue advantage. There are demand and supply sides to this offence. A briber is guilty of the offence if she/he offers, promises or gives an undue advantage to a person in order that the recipient exerts her/his influence on the decision-making of a public official. An influence peddler is guilty if she/he requests, solicits, receives or accepts an undue advantage from a person in order that she/he exerts her/his influence on the decision-making of a public official.
UNCAC Article 18 mandates the criminalisation of 'trading in influence' when this is committed intentionally and defines such conduct as follows:
- The promise, offering or giving to a public official or any other person, directly or indirectly, of an undue advantage in order that the public official or the person abuse his or her real or supposed influence with a view to obtaining from an administration or public authority of the State Party an undue advantage for the original instigator of the act or for any other person.
- The solicitation or acceptance by a public official or any other person, directly or indirectly, of an undue advantage for himself or herself or for another person in order that the public official or the person abuse his or her real or supposed influence with a view to obtaining from an administration or public authority of the State Party an undue advantage.
Refers to something to which the company or person concerned was not clearly or legally entitled, such as an operating permit for a factory which fails to meet statutory requirements.
A whistleblower can be defined as an employee, former employee, or member of an organisation who reports misconduct to people or entities that have the power to take corrective action.
It is recognised that whistleblowers should be protected against retaliation in order to encourage the reporting of misconduct. In terms of international anti-corruption conventions, the protection of whistleblowers is only covered by the UNCAC. It should be noted, however, that this convention does not mandate the protection of whistleblowers.
National legislation in the Unites States, the United Kingdom, Australia, South Africa, the Republic of Korea and others establishes different degrees and types of protection of whistleblowers in the private and public sector.