Lord Robertson speech: Facing the global challenge of corruption

Wednesday, 09 December 2009

Mr Chairman, ladies and gentlemen,

I am grateful for your introduction, and even more grateful to have another opportunity to talk about an issue about which I have a  passionate interest,  bordering at times on the slightly obsessive. I have been that way throughout my political life, as a Member of Parliament in opposition and in government, especially when I had foreign affairs or defence responsibilities.  My interest and concern intensified when I became Secretary of State for Defence and then  Secretary-General of NATO.  Since then my experience has been in the private sector and my concerns have not abated.

Since then I have been pleased to have worked with Transparency International, in seeking to promote public awareness of the impact of corruption on global society and in developing specific protocols and procedures against it, particularly within the defence industry.

Our meeting today could not be better timed. This is of course World Anti-Corruption Day.  It has also seen the introduction of the Bribery Bill in the House of Lords. This Bill builds on many years of effort by the Law Commission and was subject to an especially vigorous and creative pre-legislative scrutiny, to which TI contributed. 

I was also glad to contribute to this, and spoke this afternoon in the Second Reading debate on the Bill. There is still much detailed work to do, in both Houses but I believe that before the end of this Parliament, the UK will have a modernized and effective law against bribery. And one which will not only fulfil our international obligations but also maintain our historic reputation for integrity in public life.

Corruption is a scourge of global society. It contaminates every human activity it touches. If artists ever wanted to add a fifth horseman of the Apocalypse they could make it the gray horse of corruption. It may not work as directly as the other four, but it magnifies all the suffering caused by pestilence, war, famine and death and indeed it makes all of these more likely. We need a global campaign on corruption as much as we need a war on terror. In fact, we cannot fight terrorism without it. 

Over the years, Transparency International has produced an excellent audit of the costs of corruption. Corruption steals resources from people who need them, it distorts competition and markets and, ultimately, leads to the collapse of  governance and the rule of law. Corruption is not only bad for the world, it is bad for business – all business in all sectors – although some sectors are worse hit than others. Because there is still a widespread public perception that business, especially big business, is tolerant of corruption, I want to spend a few moments spelling out why successful businesses hate corruption.

Corruption is an unpredictable and uncontrollable cost of sales. Businesses which engage or collude in corruption can readily become victims of extortion by the people who take bribes - politicians, officials, military people, fixers of all kinds. And they can’t call the cops because they’re on the take too!

Contracts obtained by corruption can be torn up when they are exposed. Governments which award them may fall and successors may penalize the company concerned – or demand a new set of bribes for themselves.

Corruption destroys trust in a company’s managers and employees if they collude in corrupt activities and criminality. If they are prepared to rip off the citizens and taxpayers of the country concerned, what is to stop them ripping off their employer? Corruption can make life very easy for dishonest employees by creating a parallel universe of slush funds and off-balance accounts. And we know what can happen to companies with off-balance accounts – and indeed countries.

Corruption thoroughly distorts markets. It gives an undeserved chance to inefficient suppliers if countries are induced by corruption to buy products or services and place contracts which do not represent the best value.

Above all, corruption poses a major threat to the reputation of any business if it gets caught or is even credibly accused. It harms the ability of the business to win contracts from “honest” customers, for the simple reason that they do not want to be suspected of taking bribes. A perception of being corrupt affects a business’s ability to recruit and retain essential talent. It severely weakens its ability to influence public opinion and the political system – and that is a crucial consideration for defence industries when budgets are being squeezed.  

For both countries and companies corruption brings with it immense risk to reputation. I believe that more and more countries and companies are becoming aware of that risk and are actively seeking to avoid it. With the help of bodies like Transparency International and alert citizens I am convinced that this trend can be reinforced, and that it can spur further action by lawmakers, by companies and by NGOs and individual citizens.

My ultimate hope is that countries and companies can form a double fortress against corruption, in which each fortress not only protects itself but supports and protects the other. I see a system in which “good” countries – who reach high standards of honesty in their legal systems and public administration – do business only with “good” companies – which reach high standards in their behaviours and adopt strong internal controls to ensure compliance with them. And the “good” companies do business only with the “good” countries. I believe that such a system is within the reach of global society.

Reputation already makes a huge difference to the prosperity of nations and companies alike. We see this most obviously in financial markets, in the ratings given to their debts. Moreover, reputation shapes the willingness of customers to do business with companies and nations.  After I had left NATO I had a striking demonstration of its importance from the then Czech Prime Minister Mirek Topolanek.  I asked  him if he would favour the adoption of a model defence procurement process within NATO. He replied “yes, absolutely, because either we are involved in bribery, in which case we have got to clear it up, or we are accused of bribery and we want to make sure that perception does not exist".

He left that meeting and published openly, transparently the bids for a substantial defence contract. I say, well done.

The influence of reputation was even more apparent to me when BAE Systems commissioned and adopted the Report by Lord Woolf. It is worth remembering that this investigation was not done under any kind of legal or administrative compulsion, but for hard commercial reasons.

In the report Dick Olver,  BAe Systems’ chairman and his CEO publicly “acknowledged that the Company did not in the past pay sufficient attention to ethical standards and avoid activities that had the potential to give rise to reputational damage.”  They also agreed with Lord Woolf when he said

“the Company needs to raise its sights above that of becoming a leader in its sector to match the benchmarks set by global companies in other sectors.”  In other words, BAE Systems repudiated any lingering idea that corruption and bribery were normal business practice in the defence sector.

Lord Woolf came up with some notably tough recommendations, which again the company accepted and has started to apply. They include:

• Formal responsibilities on senior executives to ensure high standards of ethical business conduct themselves and across company
• Explicit formal consideration in all business decisions of ethical factors
• Strict procedures to govern choice and supervision of local advisers and presumption that these will be made known to customers
• Stronger scrutiny of offset arrangements and associated advisers
• Faster progress towards elimination of facilitation payments
• New register and rules for gifts, hospitality and donations
• Align any lobbying or campaigning activity with global code of ethics

I believe that BAE Systems can actually use the Woolf report nationally and internationally as a marketing asset. Certainly it is an object lesson in the power of reputation over company behaviour.   It is a model code of practice for any ethical company, in any sector.

As I said earlier, I believe that society can harness this power to propel action at three levels: at national and international level through law-making; at the level of company and public administration through the adoption of good practice and protocols; and at the level of citizen and consumer power.

First, the law. In pre-legislative scrutiny of the Bribery Bill some witnesses expressed scepticism over the efficacy of law in this field, arguing that even with a modernized law prosecutions would be rare and penalties mild. I do not agree. We need workable, modern laws against corruption for three reasons. The first is to carry out our international obligations (and to meet persistent criticism from the United States that British companies do not face the same legal risks as theirs). The second is declaratory – to give expression to public policy and values. I believe that Britain remains one of the least corrupt societies in the world and one of the most attached to the rule of law, but there is no doubt that this perception has been weakened overseas by recent events.

The third, and most important, is deterrence. Lawyers sometimes talk of laws having an ‘in terrorem’ effect and I hope that this will be true of the Bribery Bill. We have a strong tradition in Britain of fierce penalties against even minor infractions of public obligations, particularly from people paid with or from public funds. I believe that the Bribery Bill will maintain that tradition, and that even if actual prosecutions are rare the fear of prosecution and penalty will generate good behaviour.

That said, I believe that the deterrent effect of the law could be reinforced by two additional measures. I offer these personal ideas for discussion, not just in this country but across the world.

First, I think that contracts should become void for illegality if corruption was used to obtain. I am not clear whether that is the position in UK law: I think it should be. It would be a huge deterrent to any company to know that its contracts could be terminated – just like that – as a direct consequence of proven bribery. There would naturally be a risk, in some cases, of unjust enrichment by the party receiving the bribe, but I think that this could be met. The receiving party could be compelled to continue payments under the contract but instead of being paid to the briber they could be paid into escrow and possibly administered by a worthy third party, such as the UN Development Fund.

Second, I suggest that bribery and corruption offences should be added to the grounds for disqualification as a company director. It is part of the business of directors to prevent companies from behaving unethically.

The law has a vital role but it is quicker and often more productive for governments and industries to set standards themselves by codes and protocols. These can act as a Good Housekeeping seal of approval – so that companies and countries which do not apply them are shunned (or at least have to pay more to get people to do business with them) 

At the industry level, I think we have made real progress, led by the extractive industries. Helped by Transparency International, the European aerospace and defence industries have put real effort into the development of common industry standards, which are now applied by every major European company in the sector, and all their subsidiaries. Time and modesty will not allow me to dwell on these standards in detail: enough to say that they are rigorous and far-reaching. Companies commit themselves, their employees and their agents to make all efforts which are reasonably within their power to prevent active and passive corruption. The standards cover gifts and hospitality and political donations. Most important, companies commit themselves to use agents of integrity and to manage them carefully.

I emphasize the point I made earlier with BAE Systems. The European companies concerned were under no compulsion to adopt the common industry standards. They have done so because they are just good for business.

We are working hard to widen these standards to similar sectors in Russia – where we have had interest  -  and  Brazil, Canada and Japan, and eventually to South Africa and China. If we could achieve this we would virtually complete one of my double fortresses, uniting major global companies against corruption.

My second fortress, of nations, is not so advanced. There are many countries, including major customers in aerospace, construction and infrastructure, where public administration and procurement processes are still secretive and unaccountable. These are the conditions which most favour corruption. Many countries make highly visible efforts to combat corruption but often route them through a specialized agency. Frequently this is under-powered and under-resourced and can even become another source of corruption. The key task in any country is to get honesty and fairness ingrained in every single part of its administration. That is why I welcome Transparency International’s recent efforts to create easy-to-use anti-corruption metrics and tools for public administrations, especially in the defence sector.  

It takes me to my third focus of action: citizens.

People themselves are the strongest enemies of corruption, both in their own country and all those it trades with – so long as they have knowledge and power.  Public opinion had a key role in one of the success stories of modern times: the international crackdown on blood diamonds. The ‘Kimberly Process’ conceived by my good friend Willy Nagel here in London has done much to stamp out this pernicious trade. Consumers did not want to buy diamonds which were financing violence and war, and as voters they did not want their governments to collude with traffic in them. I wonder if consumers and voters could be mobilized in the same way against “blood coltan”, the looted mineral which fuels the endless conflict in the Congo. Many mobile phones incorporate blood coltan. Would the public stop buying them if they knew? We will not know until someone puts the question.

A strong, functioning democracy, where citizens have knowledge and power and a belief in their political system, is far and away the strongest citadel against corruption. Despite recent highly publicised scandals over outright bribes and lobbying influence over politicians and parties, democracies are inherently less corrupt than dictatorships – and therefore more efficient.

In democracies, taxpayers resent paying for expensive decisions obtained by corruption. Particular interest groups may be especially resentful – for example, service personnel and families forced to use inferior equipment due to corrupt influence in procurement.  Therefore openness is the enemy of corruption, not just in actual procurement processes but in wider debates about whether any particular expenditure is necessary at all.

I would like to advance two personal ideas for harnessing more people power against corruption.

First: all the Fair Trade movements should incorporate anti-corruption criteria in their certification processes. Whatever you think of the economic impact of Fair Trade it is the most successful collective effort to date to use consumer power to help poor producers. It would be logical as well as benign for Fair Trade bodies to campaign against corruption. You cannot hope to help poor producers from better trade terms if their proceeds are being stolen from them by corrupt officials or wasted in corrupt government expenditures. 

My second idea to harness people power: name and shame. Suppose that all would-be contractors in any country committed themselves to make public any approach that even looked to them like a request for a bribe or any other improper favour. And to name the person who made it. This could be a very powerful deterrent against such approaches. Those concerned would face the wrath of public opinion and perhaps also criminal justice. Moreover, rival contractors would be deterred from associating with them and damaging their own reputation.

There are those who have become too sanguine about ‘low-level’ corruption and say that it will always be with us - they are wrong. Low-level corruption all too quickly becomes endemic and entrenched. When that happens, the institutions which hold nations together simply dissolve. The police, the armed forces, public servants, lawmakers and regulators do not get paid their official salaries and are expected to finance themselves by graft. Public services, standards of governance and faith in the political system follow each other into a downward spiral.

Worst of all the judiciary becomes contaminated by corruption. Justice becomes a commodity, sold to the highest payer. When that happens, the rule of law collapses. Even countries with long-established judicial systems, which pride themselves on their probity, are not immune to the risk of judicial corruption. Earlier this year in the United States a judge went to jail for sentencing young people to custody in a private prison which was paying him kickbacks.

Corruption, especially in the administration of justice, sets up the conditions for a failed state. Both foreign and domestic investors shun countries where they have no security for their property and contractual rights.

In conclusion,

The campaign against global and local corruption needs to be as intense and as long-term as any effort against terrorism. Indeed, they overlap. But we need “quick wins” against corruption – before it does become endemic and accepted and ruins nations. We need to give early assurance to people that it is being exposed and punished. Tough laws are important for this purpose, but we cannot wait for governments and international bodies to agree and legislate. We need action at the level of business and public administration and we need to harness the power of citizens throughout the world.

I am encouraged that more and more businesses and countries are recognizing the risks, especially the reputational risks, which flow from corruption and at their recent efforts to combat it.

I believe that governments and businesses together, with help and prompting from bodies like Transparency International, have the power to create the double fortress system which I described – two strong and mutual supporting communities sealed against corruption. If they do, they will have no shortage of volunteers to defend the fortress walls.

Delivered by The Rt Hon the Lord Robertson of Port Ellen KT GCMG HonFRSE PC, on UN International Anti-Corruption Day