U4 Helpdesk
Query
Query
Using the OECD Convention against multinational
companies in the extractive industries
How can the OECD Bribery Convention - and other instruments
- be used to address the corrupt practices of multinational
companies in the extractive industries?
Purpose
We have been observing the that
the oil industry in western African countries is creating
enormous opportunities for rent-seeking. Multinationals from
OECD countries are involved and it is assumed that corrupt
practices vis-a-vis such companies, national industries and
states are widespread. We would like to know whether, and
to what extent, the OECD Convention could be applied as tool
for enforcing good conduct and also for sanctions.
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Content
- Part I describes cases against companies
in the extractive industries using the OECD Convention.
- Part II covers the role of development
partners in promoting the OECD Convention and other integrity standards.
- Part III focuses on ways to tackle corruption
in the oil sector (with a focus on West Africa).
Please also see:
The U4
theme pages on Anti-corruption Conventions, including the ways
that donors can use them.
Previous Expert Answers:
International
initiatives related to the Extractive Industries Transparency Initiative
Extractive
Industries Transparency Initiative and the UN Convention Against Corruption
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U4 helpdesk reply
Part I: Case Examples
In this section you will find details of cases against companies
in the extractive industries, brought under the OECD Convention provisions.
This list is by no means exhaustive. Indeed there are many ongoing
investigations which are not cited here, but which may eventually
be prosecuted. Please contact the U4 Helpdesk if you would like to
extend your query onto multinationals in the extractive industries
that are involved in ongoing investigations.
(1) Phase 2 Country Reports of the OECD Working
Group on Bribery
These reports assess whether a country is applying the OECD Convention
effectively. These
reports detail ongoing investigations and cases, amongst a range
of other issues connected to the implementation and use of the OECD
Convention.
We have searched these country reports for details of cases concerning
multinational companies in the extractive industries. The following
cases have been reported (n.b. other cases may exist that are not
recorded in these reports):
Canada (March 2004 Report):
Under the Corruption of Foreign Public Officials Act (CFPOA) which
implemented the Convention proceedings were ongoing (at the time of
this Report) in respect of charges against the Hydro Kleen Group
Inc., an Alberta-based company, and two individuals, for the bribery
of a U.S. Immigration official contrary to section 426 (1)(a)(i) of
the Criminal Code (secret commissions) and section 3(1)(a) of the
CFPOA. The offence of bribing a foreign public official under section
3(1) of the CFPOA applies in respect of a person who bribes "in
order to obtain or retain an advantage in the course of business".
The U.S. official had already been convicted of corruptly accepting
secret commissions under section 426 (1)(a)(ii) of the Criminal Code,
after having entered a guilty plea. The sum of money involved was
allegedly $28, 299.88, and pursuant to the "Agreed Statement
of Facts" filed with the Provincial Court of Alberta in the proceedings
against the U.S. official, it can be concluded that it was allegedly
paid for the purpose of obtaining preferential treatment over competitors
in terms of gaining access to the U.S. in order to do business there.
The proceedings vis-à-vis section 3(1)(a) of the CFPOA were
ongoing at the time of this Report.
France (January 2004 Report):
A number of offences falling within the scope of the Convention were
being investigated at the time of France's examination (under a variety
of criminal charges). (It does not mention specific details of cases
brought under the OECD Convention against multi-national companies
in the extractive industries).
Italy (November 2004 Report):
This summary of the Enelpower (a power generation company)
case, which involved Siemens, which provided gas turbines for
a contract carried out by Enelpower, comes from the Italy Report at
p.25.
"The following information concerning the Enelpower case is taken
from two orders of the Milan Ordinary Court, the text of which is
available to the public (The remanding order dated 5 June 2003 and
the disqualification order dated 27 April and 5 May 2004).
Enelpower SpA specialises in power generation and transmission. The
Italian government has de facto control of the company: the government
owns a 68 per cent stake in Enel SpA, which in turn owns a 100 per
cent stake in Enelpower SpA. Since 1999, Enelpower SpA has obtained
three contracts to construct power and desalination plants in the
Abu Dhabi Emirate, Oman and Qatar. The total value of the projects
was over EUR 1 billion. A consultant in the Middle East assisted Enelpower
SpA in securing the contracts. After obtaining the contracts, Enelpower
SpA in turn subcontracted part of the project to other companies in
the energy industry. For instance, Siemens AG (a German company) agreed
to provide gas turbines for a part of the project, while Alstom (a
French company) agreed to supply several boilers.
Between September 2002 and January 2003, two internal audits at Enelpower
SpA revealed several irregularities concerning the projects. A significant
portion of the fees for the consultants in the Middle East (totalling
more than USD 6 million) had been secretly transferred by the consultants
into the foreign bank accounts of two senior officers of Enelpower
SpA. In addition, several subcontractors of the projects (such as
Alstom and Siemens AG) also transferred over EUR 6 million into the
foreign bank accounts of the two senior officers, ostensibly as bribe
payments to secure the subcontracts.
After receiving a tip from a confidential informer, the Italian authorities
commenced an investigation into the case. The two officers of Enelpower
SpA were ultimately charged with conspiracy to embezzle and conspiracy
to request illegal disbursements from the subcontractors. Since the
two officers are considered Italian public officials (because Enelpower
SpA is controlled by the Italian government), they were also charged
with domestic passive bribery for accepting payments from the subcontractors.
On 5 June 2003, the Milan Ordinary Court remanded the two officers
in custody pending trial. In addition, pursuant to Decree 231/2001,
Siemens AG and Alstom were charged with bribery of Italian officials
for allegedly bribing the two officers to win the subcontracts. On
27 April and 5 May 2004, the Milan Ordinary Court banned Siemens AG
from selling gas turbines to the Italian public administration for
one year as a precautionary measure.
In addition to these crimes, the two senior officers of Enelpower
SpA are also being investigated for foreign bribery. The reasons for
the remanding and disqualification orders indicate that, based on
the confidential tip and a statement of another senior officer of
Enelpower SpA, the two accused allegedly bribed officials in the Abu
Dhabi Emirate, Oman and Qatar to secure the contracts for Enelpower
SpA. The bribes were paid through a consultant in the Middle East;
the two officers of Enelpower SpA had no direct contact with the officials.
In the reasons for the remanding order at p. 29, the Court stated:
'Investigations are currently in progress specifically relating to
the following: identification of other criminal conduct with reference
to purchases by EPW [Enelpower], the role of foreign companies in
the EMI Group, the role of Interconstruct, the purchasing sector,
the corruption of foreign government officials, the conduct of additional
sponsors in contact with EPW…' "
Norway (April 2004 Report):
Details in this report are sparse but mention is given to investigations
into Norwegian companies under the OECD Convention. The U4 Helpdesk,
through other OECD documents, found that the companies, of relevance
to this query, who were/are under investigation are Statoil and
a businessman by the name of Rokke. Both work in the extractive industries.
Switzerland (December 2004 Report):
The Swiss report mentions investigations but does not provide specific
details of cases.
United States (October 2002 Report):
The US Foreign Corrupt Practices Act (FCPA) was enacted in 1977. The
OECD Report examines cases brought under this Act. At the end of this
report a table of cases brought may be found which lists companies
prosecuted under this Act. No information on the use of the OECD Convention
against multinational companies in the extractive industries is given.
(2) TI undertook a series of Country Progress Reports in 2005, carried
out by members of its National Chapters, to assess the enforcement
of the OECD Convention. Based on this analysis, it is reported that
foreign bribery cases have been brought in eleven countries
(it should be noted that some of the cases may have been brought under
other laws relating to bribery of foreign public officials. It was
not always possible to get details of the cases initiated so the information
here is by no means definitive). For further details please request
information from TI: gdell@transparency.org. Of those cases brought
in the eleven countries TI's Progress Reports show that the following
concern multi-national companies in the extractive industries:
The 2005 Italy Progress Report mentions the Enelpower case, described
above.
For further information see A. Hansen: "Making
the OECD Convention Work - the need for North South Cooperation: Case-study:
Crimes in Cameroon and the role of North-South cooperation in seeking
justice from the French Courts"
For more background reading see also information
on the Lesotho corruption trials.
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Part II: Ways to support the OECD Convention and international integrity
standards
The potential for development cooperation in supporting the enforcement
of the OECD Convention and international integrity standards is great.
The OECD Investment Committee is working on a risk management tool
for investors in weak governance zones (countries where governments
are unwilling or unable to assume their responsibilities). This risk
management tool promotes the OECD Convention, the Conflict of Interest
Guidelines, the Budget Transparency Best Practices (in short, all the
OECD integrity instruments). The risk management tool will be used in
the context of the Asian Investment Initiative and the OECD-Nepad Investment
Initiative. You can access information on the current state of this
project at the OECD
webpage on investment guidelines.
The Risk Management Tool is scheduled for formal adoption by
OECD Members in June 2006. It will be promoted in the context of the
OECD-NEPAD Investment Initiative along with parallel inter-governmental
cooperation on domestic policy reform in these countries.
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Part III: Corruption issues in the oil industry in West Africa
Part III sets out the use of the OECD Convention within the oil industry
in Western Africa and comments on the issues of corruption to be tackled
in this sector, as well as giving details of other instruments that
may be used to tackle corruption in this sector in the region.
The OECD Convention is applicable, but corrupt practices in West
African extractive industries are broad in scope. Indeed they go beyond
the straightforward bribery covered in the OECD Convention. The
major issues for business relations of OECD-based multinationals in
West African host countries are (in addition to bribery):
Business relations with state owned enterprises (a focal point
for corrupt activity, much of which does not fall under the Convention)
Transparency and accountability of extractive industry revenues
(an issue being dealt with under the EITI)
Negotiating contracts with government officials or private
actors who are subject to conflicts of interest or have criminal connections
Money-laundering
Another instrument that may be used in this context is the African
Union Convention on Preventing and Combating Corruption. A list
of countries that have ratified can be found on the African
Union website, and an explanation is presented on a dedicated
U4 webpage.
The views expressed in this document are not those of Transparency
International.
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