This article is written by Smaranika Sen, from Kolkata Police Law Institute. This article exhaustively deals with financial corruption under the ambit of international commercial law.
Corruption is a hurdle in the development of society. It disrupts the economy, financial stability, and democracy of the country. It is like a termite in the system. Once it enters the system, it goes on increasing. It is difficult to remove corruption from its roots. Corruption is practised by especially the people in authority committing dishonest or illegal acts like bribery. The practice of corruption has been prevalent for a long time. As per Corruption Perception Index Report, 2020, almost two-third of 180 countries have scored below 50, where a hundred means clean and zero means highly corrupt. This shows that a lot of countries fall under the radar of corruption.
Financial corruption – an overview
Financial corruption means where there has been a deviation and violation of financial rules that are established by the state in different financial institutions, multinational companies, offices, etc. Financial corruption can be seen in bribes, embezzlement of taxes, nepotism in career appointments, etc. The forms of financial corruption are:
- Embezzlement: Here, the property is robbed superstitiously by breaching the trust of the owner.
- Theft and irregularity: The money of others is assaulted in the forms of theft or other forms of corruption
- Bribery: In this form, money is given instead of specific preferential treatment.
- Fraud: Providing false information.
- Earn profit from a job: By using the power of position, to gain undue advantage.
Causes of financial corruption
Corruption is highly influenced by the political environment. The more the economic activity is kept under various regulations and rules, the more officials come to look after it. Thus, due to few corrupt officers, corruption takes place. In some areas, where the officials are given the right to create regulations on the economic activity as per their discretion, the possibility of corruption is higher. Corruption also happens due to the low salaries of various public officials who want to improve their financial position by gaining illicit payments.
Professional, ethics, and legislation
Due to the lack of certain laws to criminalize corruption, lack of professionalism and ethics encourages corruption. In some sectors, soft practices of corruption are often treated as gifts and are accepted. These practices slowly build in the system and form corruption.
Demography plays an important role in observing why corruption can be kept under control. Different countries have different legislation to combat corruption. For instance, in Northern Europe, corruption is intolerant whereas in Southern Europe is warm towards such practices, no strict laws are present. Some countries subconsciously promote the indirect practices of corruption, like showing gratitude through a receipt of a gift. This might look like a mere form of showing gratitude, but such practices slowly give rise to practices of corruption.
In various countries, the economy is not fairly divided among its citizens. There is an unequal distribution of wealth. The rich using their power and influence have got hold of wealth and on the other side, the poor have got poorer. If a society is divided into categories regarding economic background, then society has three categories; rich, middle-class, and poor. We know that the rich enjoy the maximum advantages in society and the poor are always at the disadvantaged end. However, the middle class also suffers from financial insecurity to a large extent. Also, due to the low wage distribution, a lot of people suffer. Such an unfair system of wealth distribution often leads to unfair practices.
From the above points, we can get a brief idea of why there is corruption and how it spreads in society. However, the causes of corruption differ from one country to another country. Several factors are interrelated to the rise of corruption. The factors like politics, professionalism, demography, economic condition also vary according to nature, environment, situation, etc. Thus, its impact is different from one country to another.
International commercial law
International commercial law is a body of legal rules that specifically looks after the commercial transactions going on in the whole world. It includes sales of goods, mergers, secured financing data arrangements, digital content or data, etc. Whenever any transaction crosses its jurisdictional borders, the disputes arising out of such transactions are governed by international commercial law.
The legal framework under International commercial laws
To combat corruption, various countries have adopted their domestic laws. A few countries have also created a special body to look after the bribery practices prevailing in the country. However, certain legal frameworks are under the ambit of international commercial laws which affect the domestic laws to some extent. These laws also include International Financial Institution (IFI), multinational corporations, International Civil Society, etc.
The OAS Convention is known as the Organisation of American States, it is an inter-states convention established in the year 1996 to fight bribery and corruption practices prevailing among government officials. This Convention was approved by thirty-four States. This was the first legal international framework to criminalize bribery, especially among foreign government officials. This Convention aims to:
- Eradicate the corruption practices.
This Convention criminalized both illicit enrichment and transnational bribery. An illicit enrichment refers to the increase in the amount or value of the asset of any government official, who is unable to explain the source or cause of such increase. However, what can be treated as illicit enrichment or transnational bribery falls under the purview of ‘Acts of Corruption’ as stated by this Convention. This Convention has also created a program that suggests reforming specific laws, changing the code of conduct of public officials, bringing institutional reforms, etc to fight against corruption.
Recommendation on bribery in international business transactions was adopted by OECD in 1994, whose purpose was to take effective actions by the member countries to deter, prevent, and combat bribery of foreign business officials in connection with international business. The Committee on International Multilateral Enterprises, also known as CIME, in 1997 proposed another recommendation to OECD. The recommendation was based on the recommendation of 1994. This recommendation aimed to combat the issue of foreign bribery and put extra attention towards certain conduct, which would amount to the criminalization of bribery practices. The OECD Convention came into effect in 1999. This convention is a little different from other conventions. This convention instead of providing rules to fight against corruption it rather laid down certain guidelines in which the law could be formed to fight against corruption. Some of the crucial guidelines given by the OECD Convention that the member countries must follow are:
- Criminalizing active bribery
- Not only the amount of money but also the property gained through corruption would be subject to seizure or sanctions of comparable effect.
- Law should be made in such a way that it has the jurisdiction to govern an offence of bribery throughout the nation or territory.
- Penalties must be effective, proportionate, and dissuasive which applies to bribery.
Initiatives by UN
The United Nations General Assembly adopted the Anti-Corruption Declaration and Resolution in 1996 to fight against passive bribery. The declaration aims the member-states to take effective and concrete actions to combat all forms of corruption, bribery, illicit enrichments of any kind among the foreign officials in the internal commercial transactions, and also to criminalize bribery. The declaration also recommends several provisions of the OECD and OAS Convention. The UN also has a UN Code of Conduct for Public Officials, which lays down certain guidelines and recommendations to be followed by the public officials to combat corruption. According to this Code, public officials are not allowed to have any improper advantage for himself/herself or his/her family, and to use public property as their own.
Initiatives by the council of Europe
European Ministers took up an initiative to combat corruption and immediately a multi-disciplinary committee was set up to fight against corruption. The Multi-disciplinary Group on Corruption or GMC tried to examine certain potential measures for an international program to fight against corruption. In 2000, a draft program of action against corruption was submitted by the GMC and the Council of Europe approved it. After that, several other resolutions were adopted by the Council of Europe or COE to fight against corruption. Three effective instruments created by the council of Europe are:
- The Criminal Law Convention: It aimed to criminalize both active and passive bribery of both foreign and domestic officials in the public and private sectors.
- The Civil Law Convention: It requires the state to ask for redressal from those persons who had suffered damages due to bribery. It also helps the persons who faced losses to defend their rights through laws and get compensation.
- Code of Conduct on Public Officials: This recommendation sets out a model of code of conduct for the public officials which states how the public officials can deal with awkward situations like receipt of gifts.
Impact of corruption on international commercial business
The term corruption has no such definite definition, but it can be understood through various instances. A typical corrupt exchange is like a triangular relationship; it takes place between a principal, an agent, and a bribe-giver. This type of model in corruption is especially observed in private law sectors in the field of contracts. For example, an agent is an employee in a procurement department and also a CEO of a multinational company. For instance, let us assume that the agent is ‘C’ and ‘D’ is the Ministry – the principal, where he is employed and which becomes a party to the contract with the bribe-giver assumed as ‘A’. In these cases, the agent negotiates with the bribe-giver concerning the advantage of the principal. This creates a fiduciary relationship between the agent and the principal. The bribe-giver ‘A’ tries to infringe the fiduciary relationship by giving undue advantage to the agent in any form and therefore the agent in return tries to breach the fiduciary duty by ensuring that the bribe-giver ‘A’ gets preferential treatment in respect of the contract between ‘A’ and ‘D’.
Some other instances of corruption in international commercials are:
Use of Intermediaries
In international trade, the relevant parties are not known to each other. Thus, the use of intermediaries is important to execute any offence of bribery. In these cases, one party to the contract hires an intermediary person to convey the superficial details of an agreement to the other party. The details in such an agreement are evident that the other party understands the corruption is induced in the contract. A certain amount of money is also given to the intermediary.
Victim of corruption
Corruption is not a victimless crime. It has both direct and indirect victims. The direct victims are the principal of the contract, they suffer mainly financial loss. The indirect victims are the side parties to that contract and also many competitors to the bribe-givers who have genuine contracts have still lost their position to make any contract due to illicit payments.
Corruption at times also happens to be a disadvantage on the bribe givers’ side. It might be believed that the bribe giver does not fall under the purview of economic unity but in multinational companies, the bribe giver’s act affects the whole company to some extent. For example, if a manager gives a bribe to make any contract, then the company and the shareholders also become victims of corruption. If such corruption is discovered, such an act often leads to a severe fine which the company becomes liable to pay.
The practice of corruption is a threat to society. It needs to be removed from the system. The ambit of civil law is not enough to combat it, therefore criminal law is required to fight against it. Removing corruption is not possible in one or two days, it’s a long ongoing process. Strict laws and the implementation of such laws should be effective and must be executed properly. We have heard this quote since our childhood that one rotten apple destroys the other good apples. The same is the case with corruption. There might be ninety-nine honest officers but one corrupt officer can affect the whole system. Some steps which might help to remove corruption are by ending impunity, reforming public administration and financial management, promoting transparency and access to information, empowering citizens, and closing internal loopholes.
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