This memorandum evaluating the implementation of the OECD Convention by Germany is submitted on behalf of Transparency International, International Secretariat Berlin.

Introduction.

1. The package of agreements produced by the member states of the OECD with reference to bribery in international business transactions consists of
1. the "Convention on Combating Bribery of Foreign Public Officials in International Business Transactions", adopted by the Negotiating Conference on 21 November 1997 and signed on 17 December 1997 ("the Convention");
2. the "Commentaries on the Convention", adopted by the Negotiating Conference on 21 November 1997 ("the Commentaries"), and
3. the "Revised Recommendation of the Council on Combating Bribery in International Business Transactions", adopted by the OECD Council on 23 May 1997 ("the Recommendation").
2. This document evaluates action by the Federal Republic of Germany (FRG) in implementing its obligations under the Convention. It also contains some comments on action by FRG according to the Recommendation.
3. FRG has implemented the Convention by an "Act concerning the Convention of 17 December 1997 on Combating Bribery of Foreign Public Officials in International Business Transactions (Combating International Bribery Act)" ("the Implementation Act"). This Act was passed by Bundestag and Bundesrat and published on 10 September 1998 (Bundesgesetzblatt II S. 2327); FRG ratified the Convention on 10 November 1998; and the Convention and the Implementation Act came into force on 15 February 1999.
4. The Implementation Act consists of
• a brief Act of three Articles,
• Article 1 containing the Approval of the Convention,
• Article 2 containing four substantive paragraphs dealing with
1. equal treatment for domestic and foreign public officials (including judges, officials and members of the Armed Forces) for certain acts of bribery,
2. bribery of foreign elected representatives in the context of international business transactions,
3. the extension of the German Criminal Code to some acts committed by a German national outside Germany, and
4. the application of the money laundering provisions to cases of international bribery,
• Article 3 dealing with the coming into force of the Act; and
• the text of the Convention in three languages (French, English and German).
5. When the proposal for the Implementation Act was submitted to the Bundestag, it was accompanied by
• an Explanation ("Begründung") of the Implementation Act ("the Explanation");
• a Memorandum ("Denkschrift") on the Convention ("the Memorandum"); and
• the Commentaries on the Convention, adopted by the Negotiating Conference on 21 November 1997, as an Attachment to the Memorandum.
6. Under a recently passed tax law (Steuerentlastungsgesetz dated 24 March 1999, BGBl I page 402), bribe payments made to domestic or foreign public officials are no longer tax deductible. Courts, prosecutors and public administrations are held to inform the tax authorities of any suspicion of deduction of illegal payments; equally, the tax authorities are bound to advise the prosecutors and the administration of any suspicion of criminal activity. That is a significant change, for which the Government should be complimented.

Evaluation.

Article 1 of the Convention: The Offense of Bribery of Foreign Public Officials.

1. By implementing the Convention through "equal treatment" for foreign and domestic public officials, the Implementation Act introduces to foreign bribery the limiting requirement of a "breach of public duty" as is contained in the definition of "bribery" in Section 334 of the German Criminal Code. This limitation is not provided for in the Convention. However, in the Commentaries this is allowed (para 3) provided it "was understood that every public official had a duty to exercise judgment or discretion impartially...". The Explanation indeed refers to the "wide definition of the term breach of duty", which would include an act to influence the exercise of discretion. Thus, the Implementation Act introduces a formal limitation, namely the requirement of a breach of public duty, but still appears to stay within the interpretation allowed by the commonly agreed Commentaries.
2. The Convention makes it an offense for "any person...to offer, promise or give any...advantage...". The Implementation Act extends the Criminal Code (in addition to acts committed by anybody on German territory) to "acts committed by a German (national) in a foreign country". Germany thus provides for jurisdiction based on territoriality (acts committed by anybody in Germany) as well as on nationality (acts committed anywhere by a German). Acts committed by non-German foreign-based employees or agents of a German company could be prosecuted if any of their activities had occurred in Germany or if the effect of their acts occurred in Germany ("ubiquity principle"). In any case, it will be possible to prosecute headquarters staff in Germany, on the ground of "inciting or aiding and abetting the bribery", if they had given instructions to bribe, openly tolerated the offering and giving of bribes, or were involved in the money transfer.

Article 2 of the Convention: Liability of Legal Persons.

The Convention requires that each Party "shall take such measures as may be necessary, in accordance with its legal principles, to establish the liability of legal persons for the bribery of a foreign public official". The Memorandum of the FRG states that there is "no need to legislate on this point". We do not share this view, as will be explained in the following paragraph.

Article 3 of the Convention: Sanctions.

1. Among the sanctions expected to apply are criminal penalties against natural persons "comparable to the penalties applicable to the bribery of domestic public officials". This is achieved by the Implementation Act.
2. With regard to countries which do not know criminal liability of legal persons, the Convention requires/allows the imposition of "effective, proportionate and dissuasive non-criminal sanctions, including monetary sanctions...". The Memorandum argues that this requirement is met by Section 30 of the Ordnungswidrigkeiten-Gesetz (OWiG or Misdemeanors Act). We do not think so.
3. The OWiG provides for monetary fines against legal persons under very restrictive conditions, and the result in our opinion is not "effective, proportionate and dissuasive non-criminal sanctions" but something substantially short of that. There are four major constraints:
1. A "senior official or representative" of the company must have committed a criminal act or a misdemeanor; bribery of foreign public officials will rarely be committed directly by "senior officials or representatives" of a company, but usually by persons below that hierarchical level;
2. the criminal act must have violated an obligation of the legal person, or the legal person must have been enriched, or intended to be enriched, through the deed: It is questionable whether the acquisition of a contract, or the retention of a contract, through bribery fulfills the definition of "enrichment";
3. the fine cannot exceed the amount of DM 1 million; this ceiling may in major cases be inadequate; and
4. if a fine is assessed against a legal person, then the proceeds of the criminal act cannot be confiscated as well.
4. The OWiG thus is quite inadequate in its present form. As the State Minister of Justice of the State of Hesse stated before the Bundesrat on 25 September 1998 when introducing a "Bill to Create Criminal Liability of Legal Persons" (which was then rejected): "Some companies practice the principle of organized non-accountability". There are enough cases of frustrated efforts to impose criminal sanctions against senior managers in companies; yet often enough only a rather low-level employee is ultimately held responsible, if anybody. FRG preferably should introduce the concept of criminal liability of legal persons, as has been done in several other European states.
5. If that is not done, FRG should pass an Act which would properly and fully translate into German law the obligation assumed by FRG under Article 3 of the Convention. It would also be desirable for any new legislation dealing with this issue to introduce the concept of incentives for legal persons to reduce the degree of their criminal liability by establishing effective anti-corruption policy statements and the appropriate compliance programs.

Article 6 of the Convention: Statute of Limitations.

Under existing law the statute of limitations is five years, which can be extended to 10 years by appropriate interruptive action. This would appear to be adequate.

Article 7 of the Convention: Money Laundering.

By providing for equal treatment for bribery of domestic and foreign public officials, the applicability of the money laundering provisions for domestic offenses extends equally to the bribery of foreign officials. This requirement appears to have been met. This is specifically confirmed by by Art.2 paragraph 4 of the Implementation Act.

Article 8 of the Convention: Accounting.

1. German laws on accounting and auditing appear to address adequately the problems enumerated in Article 8. However, it is well known that some German companies manage (i) to create and administer black accounts for the purpose of feeding bribe payments to or for the benefit of foreign public officials, and (ii) to hide and obfuscate bribe payments through their regular accounts, making the tracing of such transactions very difficult. If indeed the laws on accounting are adequate, the regulations for auditing and auditors should be tightened. Auditors are selected competitively by companies; there is a clear disincentive for auditors to be too insistent on disclosing or discontinuing a questionable accounting practice.
2. Auditing regulations and practices should be closely reviewed, including by the auditing profession itself, so as to achieve the necessary transparency of accounts and avoid manipulation and bribery.

Articles 9 and 10 of the Convention: Mutual Legal Assistance and Extradition.

The standard German provisions for mutual legal assistance and extradition may be adequate. However, in Germany as elsewhere, there surely is a need to reduce the formal requirements and hurdles as well as to reduce the time it takes to succeed with a request for legal assistance and extradition. Here it would be useful if all the signatory states were to submit to a comparative analysis of the success rate and the time line of requests for legal assistance, and thereafter to seek parallel strengthening of these provisions.

Article 3 Section 4 of the Convention: Non-Binding "Shall Consider" Clause

1. Section 4 of Article 3 provides that each signatory state "shall consider the imposition of additional civil or administrative sanctions...". Although this non-specific obligation is not part of the formal evaluation of performance under the Convention, we wish to state that the FRG still has some work to do in this area: For example,

• the rules for the granting of export credit insurance and of capital investment guarantees should be reviewed and rewritten so as to assure that contracts acquired through bribery will not be covered by such schemes and that in any case the amounts of bribe payments cannot be included in the value of contract to be covered; companies applying for such coverage should be required to sign a formal statement to the effect that no bribery or other criminal act was involved in the process of obtaining the contract, and an acknowledgment that evidence of bribery will void all financial obligations of the insurance coverage or the guarantee; parallel tightening of export credit insurance rules by all signatories to the Convention is advised;
• companies caught in bribery should be entered, for an appropriate period of time, in a central register of companies excluded from consideration for future public contracts; and the period after which the company will be removed from the central register should depend inter alia on the quality of internal policy statements and compliance programs of the company in question;
• FRG has issued, in June 1998, a Guideline for Corruption Prevention in the Federal Administration; this Guideline provides for the installation of such a Central Register. However, to date the enabling legislation or regulation has not been prepared. This should be done promptly.

Submitted by TI Working Group on OECD Convention

Fritz Heimann, TI-USA

Peter Rooke, TI-Australia

Michael H. Wiehen, TI Deutschland

March 31, 1999