Essays and Reports

Export credit agencies’ graft crackdown stalls

(February 15, 2006) Germany and Japan are blocking efforts to tighten anti-corruption controls covering companies supported by official export credit agencies, according to confidential documents obtained by the Financial Times.
New international anti-bribery guidelines for export credit agencies were due to be agreed in principle early next month. Opposition from Berlin and Tokyo, plus several smaller countries, means the decision will now be delayed by months, if not years, according to officials close to the negotiations, which are taking place in the Paris-based Organisation for Economic Co-operation and Development.

In position papers for the OECD, Germany and Japan argue that the tougher rules are too bureaucratic. Their stance could prove embarrassing, as both countries supported the decision by the G8 group of industrialised nations at the Gleneagles summit last July to ensure that export guarantees are not used in projects where companies pay bribes.

The summit communiqué, which added urgency to the OECD negotiations, says the G8 will “strengthen . . . anti-bribery requirements for those applying for export credits and credit guarantees”.

Export credit agencies (ECAs), such as the Export-Import Bank in the US and Euler Hermes in Germany, have grown in importance in supporting long-term projects in countries where investment risks are high. ECA guarantees are often a key factor for companies, for instance enabling a dam project or defence contract to go ahead.

ECAs disburse annually about $100bn (€84bn, £58bn) in medium and long-term credits and guarantees, compared with the approximately $60bn in loans by the World Bank and other multilateral development banks, according to an International Monetary Fund report last year.

The new draft OECD guidelines build on a weaker “action statement” from 2000 and stipulate extra anti-bribery steps by companies supported by ECAs, for instance by improving transparency about overseas consultants employed to help win tenders.

Anti-corruption campaigners and some OECD member states point to evidence that such consultants, known as “agents”, often receive or pass on bribes worth hundreds of thousands of dollars.

The OECD draft guidelines say applicant companies must “disclose upon demand the identity of (agents) . . . and the amount and purpose of commissions . . . paid to such persons”.

The German paper says tackling corruption is a “priority issue”, but insists the paragraphs on agents be removed. For its part, Tokyo notes it is “sceptical about the . . . necessity of this provision (on agents)”, and says it should be scrapped.

The OECD draft says companies should be obliged to tell ECAs if they h+ave been charged or convicted of corruption, another change opposed by Berlin and Tokyo. Belgium and the Czech Republic are also arguing against the new guidelines, officials said.

A Japanese government official with knowledge of the negotiations said Tokyo was “not negative on tightening existing arrangements, but we need a balance between addressing corruption and the ability to carry out operations smoothly”.

The German government refused to comment, but Heiko Willems, ECA expert at the BDI, Germany’s leading business association, said it was “not appropriate for companies to have to justify the size of a commission for an agent. This can always be checked on a voluntary basis.

Disclosing the identity of an agent could lead to him being recruited by a competitor”.

Analysts argued that Germany and Japan used ECAs to boost their companies’ exports and investments, and were cautious about giving the agencies anti-corruption responsibilities.

The US is backing the draft OECD text, in part to bring other countries in line with long-standing US anti-corruption laws.

Neill Stansbury, an expert with Transparency International, the anti-corruption watchdog and adviser to the OECD’s ECA working party, said “many ECAs see themselves as insurers of last resort, which little concern for corruption. That view is wrong beyond comprehension. Many companies now realise a corrupt project is a sick project – and such
projects are most common in risky countries where such guarantees are most necessary”.

Additional reporting by David Pilling in Tokyo and Edward Alden in Washington.

Hugh Williamson, The Financial Times, February 15, 2006

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