CAFOD SUBMISSION TO THE IDC INQUIRY ON TACKLING CORRUPTION OVERSEAS CAFOD is the official aid agency of the Catholic Church in England and Wales and part of Caritas Internationalis. Since 2002 we have been working on actions that the UK Government can take to reduce overseas corruption. CAFOD is a long-term member of the Publish What You Pay Coalition and fed into the development of the Extractive Industry Transparency Initiative. We also championed the creation of the 2010 Bribery Act as a chance for the UK to show leadership, and are also engaged in the Open Government Partnership. Our work is informed by the views and priorities of our partners and our understanding of Catholic Social Teaching. EXECUTIVE SUMMARY While some are concerned only with financial gain, and others with holding on to or increasing their power, what we are left with are conflicts or spurious agreements where the last thing either party is concerned about is caring for the environment and protecting those who are most vulnerable. Here too, we see how true it is that unity is greater than conflict. (Laudato Si 198) 1 A ONE HMG ANTI-CORRUPTION STRATEGY Preventing illicit capital flight and returning stolen assets would help support developing countries mobilise their domestic resources and encourage investment. As a role model for other governments on anti-corruption, it is essential that the UK keeps an up to date cross governmental anti-corruption action plan to tackle international and national corruption issues together. To this end, DFID should proactively engage in drawing up a new plan and ensure that it: - Rekindles the commitment to creating new corporate liability and professional enabler offences, and is accountable to parliament - Extends open contracting principles from UK procurement to cover climate and development finance - Includes a mechanism to hold the Anti-Corruption Champion accountable to parliament for the design and implementation of the anti-corruption plan CREATE ROBUST DETERRENTS AND ENFORCEMENT MECHANISMS Effective deterrents are key to mitigating and limiting the effects of corruption both at home and abroad. Unfortunately our current institutions are suffering from inadequate funding and resources to investigate and prosecute cases. Company reporting is also an effective way of driving positive business practices and increasing transparency. To improve the quality of its commissioning and contractual arrangements with private actors, the UK Government should: - Ensure the Serious Fraud Office and other specialist teams have sufficient resources to properly investigate and tackle links between national and international corruption in the UK and to effectively collaborate with international enforcement agencies - Require all companies, sub-contractors, funds, sub-funds and investee companies claiming to or contracted to deliver on climate or development goals to disclose their corporate structure, beneficial ownership and meet open contracting principles. - use its influence to ensure that the Crown Dependencies and Overseas Territories adopt public registers of beneficial ownership 1 Pope Francis Encyclical Laudato Si is an invitation to everyone to enter into dialogue on care for our common home
- Ensure that non-financial reporting requirements apply to all listed companies, not only those with more than 500 employees 1. How important is UK domestic anti-corruption policy and practice to international efforts to curb its effects? Is there a coherent One HMG strategy to combating the effects of corruption on developing countries, and what should DFID s role be within this? What are the challenges in practice? 1.1 From 2003-2012, developing countries are estimated to have lost US$6.6 trillion to illicit outflows i. Preventing illicit capital flight and returning stolen assets would help support developing countries with their domestic resource mobilisation. The B20 have also highlighted how corruption and a lack of transparency can deter investment and make it more expensive. 1.2 The UK s first cross governmental anti-corruption action plan rightly gave recognition to the fact that international and national corruption issues need to be addressed together, since they are often inextricably linked. Building on the aspirations set out in that first plan, more needs to be done to map what is known about corruption and how it functions so that strategies to tackle it can be more effective. 1.3 The UK government should engage in open dialogue with other actors, including NGOs, who can contribute to this intelligence. Full use should be made of the open government partnership s (OGP s) principles of participatory policy-making, especially given that the anti-corruption action plan is a commitment under the UK s second OGP National Action Plan. 1.4 The second OGP National Action Plan already commits the UK government to open contracting principles for UK public procurement. These principles should be extended to cover all actors that are contracted to or claim to deliver climate and development finance goals. This commitment should be made under the third OGP National Action Plan, which is due to published in June 2016. 1.5 Contracts that deliver ODA objectives should be publicly accessible and the terms and conditions should set out clearly how the costs, risks and benefits of each project are shared between donor governments, private investors, recipient governments and local communities. 1.6 Such improvements in transparency, accountability and participation would significantly contribute to tackling corruption and promoting good business. This process of dialogue and collaborative problem solving is vital to identifying and closing down the areas that less scrupulous individuals and companies are able to exploit. 1.7 All ODA projects should be designed, implemented and monitored in a participatory, transparent and inclusive way, based on a detailed understanding of the demand in target communities and including free, prior and continuously informed consent for all affected communities. These results should shape the criteria against which donor governments and commercial markets make investment decisions that could deliver low-carbon energy and sustainable development. 1.8 There must be policy coherence within and across UK government departments beyond DFID. DFID should be pro-active in making links with existing initiatives which other Government departments lead on, such as the Open Government Partnership and the UN Guiding Principles on Business and Human Rights. The current review of the UK s Action Plan on Business and Human Rights offers an excellent opportunity to improve policy coherence in relation to the role of private sector actors within development, and deliver on transparency, accountability and reduced corruption.
1.9 The Home Office will be drafting a second cross-government anti-corruption plan, following the international Anti-Corruption Summit which will be held in London in May. We would like to see the new plan rekindle the commitment to creating new corporate liability and professional enabler criminal offences. It must also detail how its design and implementation will be accountable to parliament. The UK is a role model for other governments on anti-corruption so it is essential that this plan provides coherent commitments across Whitehall and DFID should proactively engage in its creation. 1.10 We have welcomed the resourcing of the Anti-Corruption Champion within the Cabinet Office and recommend that the Joint Anti-Corruption Unit is formalised. We recommend that a mechanism is set up to ensure that the Anti-Corruption Champion is made accountable to parliament. The Champion should provide an annual report to parliament on his/her work and the design and implementation of the plan. The report should include, at a minimum, a written ministerial statement and should be distinct from wider reporting on serious and organised crime. This would provide Parliament and other stakeholders with an opportunity to review and debate progress. 1.11 RECOMMENDATIONS: DFID should: a) proactively engage with the creation of a second cross-whitehall anti-corruption plan b) Ensure the new plan rekindles the commitment to creating new corporate liability and professional enabler offences, and is accountable to parliament c) Extend open contracting principles from UK procurement to all actors that are contracted to or claim to deliver climate and development finance. This should be a new commitment of the 3 rd National Action Plan under the Open Government Partnership. The same standards should be applied to all actors d) All ODA projects should be designed, implemented and monitored in a participatory, transparent and inclusive way, based on a detailed understanding the demand in target communities and including free, prior and continuously informed consent for all affected communities e) Develop a mechanism to ensure that the Anti-Corruption Champion is held accountable to Parliament for their work, and the design and implementation of the crossgovernmental anti-corruption plan 2. What more should the UK Government be doing on issues such as beneficial ownership, tax havens, illicit flows and the arms trade to limit the effects of corruption on developing countries? How might it use its influence to encourage coherent international action? 2.1 Our analysis of DFID and DECC s Climate Public-Private Partnership (CP3), highlighted a lack of data collection and oversight regarding how investments deliver climate and aid goals in the communities where they invest. Resources are not being used efficiently since the demands in diverse communities are not being mapped and shared the lack of identification and circulation of this information is stunting the diversity of innovation required to address these global challenges. At present the government may be vulnerable to relying on actors who are not delivering the impacts on the ground without even realising this to be the case. The government should play a role in circulating this data and information amongst implementing partners in order to maximise the quality and diversity of locally appropriate innovation. In this way we will develop
knowledge about what does work, for whom and how to identify when funds are not being used appropriately. 2.2 In order to know who government is doing business with, and to improve the quality of government commissioning and contractual arrangements with private actors, we recommend that the UK government should require all companies, sub-contractors, funds, sub-funds and investee companies claiming to or contracted to deliver on climate or international development goals to disclose to open data standards: disaggregated project-by-project financial and nonfinancial data; the company structures used to make each investment; and the beneficial owner of each company, special purpose vehicle and/or other entities used to deliver each project. 2.3 Effective deterrents are key to mitigating and limiting the effects of corruption both at home and abroad, but the current institutions are suffering from inadequate funding and resources to investigate and prosecute corruption cases. We fully support the UK Bribery Act 2010, which sends the right message to businesses. However, there are shortcomings in enforcement which are weakening its deterrent effect. 2.4 For example, in the case of the UK s first Deferred Prosecution Agreement with Standard Bank PLC regarding the bribery of Tanzanian officials, we are not clear if the Serious Fraud Office (SFO) received information about the company s actions beyond that which the company itself provided. As a result we have concerns that the compensation agreed was too low; and that although the company was held accountable, it remains unclear whether or not specific individuals committed a crime. 2.5 Ensuring both company and individual accountability is vital in order to tackle corruption effectively. Creating both channels of legal accountability would avoid uncertainty about whether the law will hold an individual, the company or both to account. Removing the uncertainty will help to prevent companies scapegoating employees while continuing poor practices, while also preventing companies from being held accountable for the actions of one corrupt individual. 2.6 The Tanzanian case highlights that the SFO is not adequately resourced by its blockbuster funding arrangement. It needs to be sustainably and independently resourced to genuinely challenge company behaviour and provide and effective deterrent to high-level bribery and corruption. 2.7 The UK should use its influence to ensure that the Crown Dependencies and Overseas Territories adopt public registers of beneficial ownership. This will support developing countries to find out who they are doing business with and enable them to do more to mobilise domestic resources for their sustainable development. 2.8 The UK Government should commit to extend the UK Bribery Act to all legal persons incorporated in the Crown Dependencies and Overseas Territories. This was a key recommendation made by the OECD Working Group on Bribery in the phase 3 report on the UK (2012). 2.9 As a further deterrent, the UK is currently transposing the European Non-Financial Reporting Directive into UK law. 2 Recognising that company reporting is a light-touch way to drive positive practices at senior management level and increase transparency, Member States agreed that it 2 The BIS Consultation was launched in February 2016: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/500760/bis-16-35-non-financialreporting-directive-consultation-february-2016.pdf
was important to improve the consistency and comparability for corporate reporting on a range of issues including anti-corruption and bribery matters. 2.10 This is an opportunity to build a system of corporate reporting that is comprehensive and high quality. It is important to ensure that this includes robust monitoring requirements so that customers and investors know whether companies actually implement the standards. Smart reporting requirements that ensure company directors and audit committees consider the nonfinancial risks of their activities would also encourage positive change. The comply or explain clause means that this does not represent an undue burden. 2.11 The Government should recognise the value of this approach and ensure that the transposition process is not used to reduce existing reporting requirements for smaller listed companies. Instead, we believe that the scope for Member States included within the directive should be used to ensure that the largest non-listed companies are also covered by the new reporting requirements. The largest non-listed companies should also report on a comply or explain basis on environmental, social and employee matters, respect for human rights, anticorruption and bribery matters. 2.6 RECOMMENDATIONS: a) DFID should identify qualitative and quantitative data and about what does and does not work to deliver climate and development finance goals for people living in poverty and marginalised groups in developing countries. DFID should lead governments across the world in collaborating to ensure that all actors claiming to deliver climate and development finance collect and pool this knowledge. This will help to fuel innovation of locally appropriate solutions to unprecedented and complex global challenges and identify when funds are not being used appropriately. b) The Serious Fraud Office and other specialist teams must have sufficient resources to properly investigate and tackle the links between national and international corruption in the UK and to effectively collaborate with international enforcement agencies c) Access to redress in UK courts should be available for overseas violations by UK listed and headquartered companies d) The UK should use its influence to ensure that the Crown Dependencies and Overseas Territories adopt public registers of beneficial ownership e) Commit to extend the Bribery Act to all legal persons incorporated in the Crown Dependencies and Overseas Territories as per the recommendation in the OECD Working Group s phase 3 report on Bribery (2012) f) Ensure that non-financial reporting requirements apply to all listed companies, not only those with more than 500 employees. i Global Financial Integrity, (Dec 2014), Illicit Financial Flows from Developing Countries: 2003-2012, http://www.gfintegrity.org/report/2014-global-report-illicit-financial-flows-from-developing-countries-2003-2012/