A basic design principle for sanctions regimes is that crime should not pay. Yet, the OECD has just released a simulation study showing that foreign bribery can be an attractive investment for companies in many jurisdictions.
Specifically, 23 of the 41 Parties to the Anti-Bribery Convention have such low maximum fines that companies would still be willing to “invest” in a foreign bribery scheme even if it knew in advance that it would be caught and fined at the end of the bribery scenario. Clearly, this implies that fines for bribery are set too low in these jurisdictions.
In fact, the broader theme of the study is that sanctions regimes are highly fragmented. While fines are low in many jurisdictions, they are exceedingly high in others. In many cases, however, these high monetary penalties exist only on paper because they are not backed up by effective enforcement. For example, the three countries with the highest de jure fines have never successfully completed an enforcement action against a legal person. Only a few countries combine strong sanctions with active enforcement of anti-bribery laws.
This patchwork of incentives and disincentives for foreign bribery is explored using simulations of “net present value” for “investments in foreign bribery” under assumptions of both certainty and uncertainty. The simulations draw on maximum sanctions data produced by the OECD Working Group on Bribery for each of the 41 Parties to the Anti-Bribery Convention and on the cash flows -- including both bribes and benefits -- associated with a real-world bribery scheme that was the subject of a successful enforcement action.
If the net present value is positive, then the company expects to have a positive return from the bribery scheme, even knowing that it will have to pay the maximum fine available in that jurisdiction.
The simulations also show that the availability of effective systems of confiscation -- that is, the deprivation of property by a competent authority, such as a court -- has the potential to significantly reduce the fragmentation of incentives. Whereas 23 countries had positive returns the bribery scheme when only fines are considered, only six countries still have positive return if confiscation is available.
However, an OECD-StAR study shows many countries lack the necessary expertise and legal infrastructure to establish such systems -- many schemes that exist on paper are not effective in practice.
The simulations cover only two types of sanctions -- fines and confiscation -- and therefore do not capture the full set of incentives facing companies. For example, they do not include other influences on the decision to bribe, such as reputation effects and executive liability. They also do not cover other types of sanctions such as debarment from public procurement processes.
Although the simulations do not present a full picture of all the ways that legal systems influence bribery, they are, in effect, a thought experiment that has clear strategic implications for the OECD Working Group on Bribery.
As a matter of high priority, fines in many jurisdictions need to go up and confiscation regimes need to be made more effective. Although improving legal systems is often a slow, painstaking process, countries are already taking steps to strengthen monetary sanctions for foreign bribery. France and Germany have substantially raised fines for legal persons in recent years, thanks in no small part to pressure from the OECD Working Group on Bribery. Other countries now need to follow suit.