Happy International Anti-Corruption Day 2012! 1

Every year since 2003, when the UN General Assembly passed Resolution 58/4 designating December 9th as International Anti-Corruption Day, more countries have joined forces to raise awareness about corruption, and about the importance of international instruments such as the United Nations Convention against Corruption (“UNCAC”). As of this month, 164 nations have ratified the UNCAC, leaving only 30 to go before universal adoption.

In order to support the ratification, implementation and monitoring of the Convention, the UNCAC Coalition was formed in 2006. It is a global network of more than 350 civil society organizations, including international, regional and national groups, each of them focusing on issues that affect transparency and anti-corruption advocacy.

With the establishment of each new institution to enforce anti-corruption laws, important measures are being taken against corruption. Likewise, as companies headquartered or doing business in these countries become part of the anti-corruption business network, more progress is made. Compliance is becoming more effective, more focused, and more feasible for companies and their intermediaries.

This is a great and positive development – that countries, national institutions, state-owned enterprises, and private corporations and civil society organizations are embracing anti-corruption as a creed, and actively advocating in their communities. Of no less importance, however, is the involvement of ordinary people — of individuals who are tired of resources being sucked into the black hole of corruption, and who want to make their corner of the world a better place.

The grassroots groups formed by these individuals are a good measure of the depth and breadth of anti-corruption efforts around the world. In 2011, the upheavals in North Africa and the Middle East helped open people’s eyes about the evils of corruption. In 2012, India’s popular movement against corruption has been widely publicized. The proliferation of on-line reporting sites, beginning with India’s ipaidabribe.com, has given a voice to people all over the world who want to shed light on corruption in their countries. Anonymous reporting sites are up and running now in Pakistan, Kenya, Greece and Zimbabwe, and will soon be operating in Mongolia and the Philippines. Government agencies all over the world have set up sites, and so have businesses private businesses and universities. In some countries, special applications have been developed for cellphones so that bribe demands can be reported anywhere, any time.

With public awareness and electronic methods of increasing transparency, enforcement of national and international anti-corruption laws is also on the rise.

All of these developments point to real progress combating corruption on every continent. Today, we celebrate this progress, and vow to continue working toward clean and transparent business throughout the world.

An Overview of Turkey’s Corruption Problems – Part II Reply

Today’s post, the second in a tri-partite series about Turkey, was contributed by TRACE intern Asli Aksoylu, a Turkish attorney who recently received her LLM from Northwestern University School of Law.

Turkey - Parliament building

Ankara, Grand National Assembly Building

Turkey’s International Anti-Bribery Obligations

Turkey and International Conventions

Many countries are aligning their legislation with the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (“OECD Convention”), which sets common grounds to combat bribery at the international level; Turkey is one of these countries.

Turkey’s public sector is perceived to be the 54th most corrupt country out of 176 countries according to the Corruption Perceptions Index 2012 published by Transparency International. Even though the results of surveys seem pessimistic, Turkish authorities have taken the initiative to fight against corruption by ratifying international conventions and introducing legislative amendments in parallel with these. Most importantly, Turkey ratified OECD Convention on July 26, 2000 and the implementing legislation entered into force on January 11, 2003. Turkey was subject to Phase 2 review, which assesses whether the country implements the laws and rules of the OECD Convention and enforces them in practice. The working Group will prepare Turkey’s Phase 3 report in March 2014, to evaluate the sufficiency of Turkey’s legislative amendments as well as Turkey’s efforts enforcing the anti-bribery legislation.

Along with the OECD Convention, Turkey signed United Nations Convention against Corruption (“UN Convention”) on December 2003, which is the first global convention on corruption aiming at preventing corruption in both public and private sectors. Turkey ratified the UN Convention in November 2006.

Turkey became a member of Group of States Against Corruption (“GRECO”) upon ratifying Council of Europe’s Civil Law Convention on Corruption, which mainly provides remedies for people who suffer damage due to corruption. Turkey also ratified the Council of Europe’s Criminal Law Convention aiming to improve criminal law measures for national and international bribery offences as well as international cooperation in the prosecution of these offenses. Additionally, Turkey ratified the Council of Europe’s Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime in 2004, which aims to assist international cooperation in investigating crimes as well as seizing and confiscating the proceeds thereof.

For companies doing business in Turkey, TRACE offers due diligence reports on commercial intermediaries and model compliance policies.  TRACE members have access to the Resource Center, which contains summaries of applicable Turkish law, guidelines on gifts and hospitality, and research on corporate best practices.  For information, click here, or visit TRACEinternational.org.

Not Much Bang for Bribery Bucks Reply

Red_deer_stag_2009_denmarkA study recently published by Professors Raghavendra Rau of Cambridge University, and Aris Stouraitis and Yan Leung Cheung of Hong Kong Baptist University, debunks the myth (still apparently held by some anti-corruption skeptics) that bribes are good for business.

The research analyzed 166 documented incidents of bribery over a 36 year period, through an examination of profits gained when contracts connected with the incidents were awarded.   On the one hand, the data showed that bribes resulted in about USD 7 of benefit for every dollar paid, and thus did result in lucrative contracts being conferred.  On the other hand, the benefit derived from the corrupt payments was effaced as bribe amounts increased.   Moreover, the research showed that the “best performing” companies did not pay bribes; it was the “inefficient” companies that felt compelled to use this method to increase business.  These companies, it turns out, underperform for three years prior to receipt of the contract, and three years afterward.

The biggest bribes, to the highest ranking officials, produced by far the least profit, according to Rau.

An Overview of Turkey’s Corruption Problems – Part I Reply

Today’s post is by TRACE intern Asli Aksoylu, a Turkish attorney who recently received an LLM degree from Northwestern University School of Law.

turkey flag

A. Corruption of Turkish Officials by Foreign Companies

The Securities and Exchange Commission (“SEC”) announced on Sept. 24, 2012 that it had reached a settlement with Tyco International Ltd. (“Tyco”) following illicit payments by Tyco’s subsidiaries to foreign public officials in various countries, including Turkey. According to the SEC’s press release, Tyco’s subsidiary arranged illicit payments for a Turkish public entity in order to purchase microwave equipment. The name of the Turkish entity was not announced; however an employee e-mail of Tyco’s Turkish subsidiary indicated that “everyone knows you have to bribe somebody to do business in Turkey.”

Not surprisingly, Tyco is not the only investigation that US authorities initiated in connection with corrupt payments by intermediaries operating in Turkey. In 2007, the SEC found that a Turkish subsidiary of Delta&Pine had made improper payments to officials of the Turkish Ministry of Agriculture and Rural Affairs, and thereby violated the Foreign Corrupt Practices Act (“FCPA”) and the Securities Exchange Act of 1934.  The investigation revealed that the Turkish Deltapine’s payments induced officials to omit performing certain acts that were part of their lawful duty and caused them to violate the relevant Turkish laws while granting reports and certifications to the company. As a result, Delta&Pine and its Turkish subsidiary Turk Deltapine settled with the SEC, and jointly agreed to pay a civil penalty amounting to $300,000.

In another investigation, a joint venture that Germany-based automobile company Daimler AG (“Daimler”) and several Turkish companies established in Turkey, namely Mercedes Benz Turk, was involved in a bribery scheme. In 2006, Daimler’s corporate audit department found evidence indicating that nearly half of the payments of Mercedes Benz Turk, made in connection with vehicle export transactions, were improper payments and gifts to foreign government officials. The revenue reaped from these transactions was approximately €95 million. During the time of this improper conduct, Daimler was required to comply with the provisions of FCPA as its predecessor registered its shares with SEC in 1993. As a result of the investigations, Daimler settled with the DOJ and SEC, agreeing to pay approximately $185 million in total as criminal and civil fines without admitting or denying the charges.

Corruption in the Health-Care System

Aside from these examples, doctors in state-owned hospitals in Turkey were caught in the spotlight when the DOJ focused its investigations on the health-care industry. Investigations in this area are presumed to have started with Johnson & Johnson’s investigation, as the DOJ press release indicated that Johnson & Johnson’s cooperation played an important role in identifying corrupt practices in the life sciences industry. According to public information available, Medtronic is currently under investigation for potential violations of the FCPA in several non-US countries, including Turkey, in connection with improper payments made to government-employed doctors for the sale of Medtronic medical devices. However, Medtronic was not the only company allegedly dealing with corrupt practices in Turkish health-care industry. According to the DOJ, Micrus also made payments to doctors in Turkey and several other countries without obtaining requisite permits in order to induce hospitals to purchase Micrus products. As a consequence of the investigations, Micrus and its Swiss subsidiary entered into a deferred prosecution agreement with the DOJ under which they agreed to pay $450,000 in penalties.

B. Corruption within Turkish Entities Operating Abroad

UN Oil for Food Programme

Illicit payments to officials in the Iraqi government in order to secure contracts during the period of UN Oil for Food Programme has been another major focus of FCPA enforcement. Even though Turkey did not initiate investigations of the 139 Turkish companies that are alleged to have been involved in this corrupt practice in Iraq according to the 2005 Final Report of the Independent Inquiry Committee, internal investigation of multinationals revealed corrupt conduct in Turkey.  One example is York International Corporation (“York”), a US corporation that acknowledged liability for the misconduct of its subsidiaries in Delaware and Dubai, which allegedly made improper payments to the Iraqi government in connection with the Oil for Food Programme. During its investigation, York discovered that its subsidiaries paid bribes and kickbacks to obtain and retain business on government projects in Turkey along with other countries.

In 2008, Siemens settled charges with DOJ and SEC with the record-breaking penalty and fine amounting to $800 million.  The Turkish subsidiary of Siemens, Siemens A.S., formed part of this  investigation as well. Three years after the settlement, the Turkish Prime Ministry Inspection Board initiated an investigation against Siemens’ Turkish subsidiary in relation to alleged bribery of the company in Turkey and Iraq from 1999 to 2007. These payments in Iraq are presumed to be made in connection with the United Nations Oil for Food Programme. In this context, the Republic of Iraq filed an action before the US District Court for the Southern District of New York claiming damages against 93 defendants including Siemens A.S.

Kazakh company in which a Turkish telecommunications company holds a stake under investigation within the scope of FCPA

Aside from the above mentioned examples, a company in which Turkcell Iletisim Hizmetleri A.S. (“Turkcell“) holds a stake was under investigation (see earlier TRACEblog post, here).  Turkcell is the leading Turkish telecommunications company, and is currently the only NYSE-listed company in Turkey.  The company that was the subject of investigation is KCell, a mobile operator in Kazakhstan that is partly owned by Fintur Holdings B.V., in which Turkcell holds 42.5% of the shares.  Turkcell disclosed in its 2011 F20-F, however, that the allegations were not substantiated after the completion of an internal investigation.

For companies doing business in Turkey, TRACE offers due diligence reports on commercial intermediaries and model compliance policies.  TRACE members have access to the Resource Center, which contains summaries of applicable Turkish law, guidelines on gifts and hospitality, and research on corporate best practices.  For information, click here, or visit TRACEinternational.org.