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Cablegate: Oecd: Report of March 12-14, 2007 Meeting of The

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C O N F I D E N T I A L PARIS 003181

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STATE FOR EB/IFD/OMA, EUR/ERA, INL/C, L/LEI AND L/EB
DOC FOR ITA/MAC/MTA/KOZLOWICKI, OGC/NICKERSON/MANSEAU
DOJ FOR CRIMINAL DIVISION/FRAUD SECTION/MMENDELSOHN/JACOBSON
USEU FOR MRICHARDS
PASS TO US SECURITIES AND EXCHANGE COMMISION/ENFORCEMENT/RGRIME,
INTL.AFFAIRS/TBEATTY

FROM USOECD

SIPDIS

E.O. 12958: DECL: 07/25/2012
TAGS: KCOR ECON EINV ETRD PREL OECD
SUBJECT: OECD: REPORT OF MARCH 12-14, 2007 MEETING OF THE
WORKING GROUP ON BRIBERY

Classified By: A/DCM CURTIS STONE FOR REASONS 1.5 (B AND D)

1. (SBU) SUMMARY: At its March 12-14 meeting, the OECD Working
Group on Bribery (WGB) conducted Phase 2 peer-review evaluations
of Portugal and Ireland's implementation of the OECD
Anti-Bribery Convention ("Convention"). The WGB called on
Portugal to raise awareness of foreign bribery in both the
public and private sector, to be more proactive in detecting,
investigating and prosecuting foreign bribery offenses, and to
take measures to disallow undocumented, confidential expenses.
Lead examiners advised that the GOI's poor participation in the
original on-site visit left them with little basis to assess
Ireland's implementation and enforcement efforts. Ireland
acknowledged this problem and agreed to an additional on-site
visit within one year. The WGB assessed UK efforts to implement
the Convention in context of a Phase 2 written follow-up review,
continued discussions on the UK's discontinuation of the
BAE/Saudi Arabia investigation, and released a public statement
expressing serious concerns. The WGB also announced its
decision to conduct a supplemental, Phase 2 bis examination of
the UK. Japan reported on results of its self-assessment of
obstacles to effective enforcement. The WGB completed Phase 2
follow-up reviews of Japan and Switzerland and established
mandates for two sub-groups to review anti-bribery instruments
as part of the possible revision of the 1997 Revised
Recommendation, which outlined best practices in areas such as
accounting, auditing and public procurement, non-tax
deductibility of bribes and other measures to combat foreign
bribery. END SUMMARY.

TABLE OF CONTENTS

Portugal Phase 2 Evaluation - paras 2-3
Ireland Phase 2 Evaluation - paras 4-6
Japan Self-Assessment - paras 7-10
Phase 2 Follow-up Reports - para 11
-- Japan Written Follow-up - paras 12-13
-- UK Written Follow-up - paras 14-19
-- UK: BAE/Saudi Arabia - paras 20-24
-- Switzerland Written Follow-up - paras 25-26
-- Revision of Anti-Bribery Instruments- para 27
-- Deferral of Tour de Table - para 28
-- Outreach Activities - para 29
-- 2006 Annual Report- para 30
-- Other Items - paras 31-34

PORTUGAL PHASE 2 EXAMINATION

2. (U) Lead examiners Brazil and the Netherlands briefed on
results of the Phase 2 on-site visit to Portugal, identifying
key deficiencies in Portuguese enforcement efforts. Although
Portugal had made significant legislative efforts to implement
the Convention, it has had no foreign bribery prosecutions or
serious investigations. While many government actors are
involved in anti-corruption efforts, they are not active. More
vigorous action by the private sector is also required. The
Portugal delegation reported that the on-visit had made a very
positive contribution to Portugal's revision of its criminal
code. Since the visit, the Foreign Ministry, Ministry of
Economy and the Export Promotion Agency had carried out a major
dissemination campaign to inform all Portuguese missions abroad,
major business associations and the largest Portuguese companies
about foreign bribery obligations.

3. (U) WGB members called on Portugal to take measures to
disallow undocumented, confidential expenses; establish an
autonomous definition of foreign public officials; clarify
reporting obligations and procedures within the public service
and accounting and auditing professions; provide additional
resources and training to law enforcement authorities to
proactively detect, investigate and prosecute foreign bribery;
E

raise awareness among public officials on preventing, detecting,
reporting and investigating foreign bribery, including raising
awareness among law enforcement authorities about special rules
to establish nationality and extra-territorial jurisdiction in
foreign bribery cases, specifically the absence of a dual
criminality requirement; and to work more closely with the
private sector and civil society to raise awareness and to
develop effective prevention strategies.

IRELAND PHASE 2 EXAMINATION

4. (SBU) Lead examiners New Zealand and Estonia reported on a
wholly unsatisfactory on-site visit to Ireland in October.
Inadequate preparation and participation by the GOI left them
with little basis to assess Ireland's implementation and
enforcement efforts. They advised that the total absence of
awareness raising activities on foreign bribery in Ireland had
demonstrated the low priority given to Ireland's application of
the Convention. There have been no prosecutions of foreign
bribery in Ireland. No law required public officials to report
foreign bribery allegations, no whistle-blowing legislation was
in place for the private sector, and overlapping statutes
prohibiting foreign bribery contained differing elements which
could impede enforcement efforts.

5. (U) Lead examiners reported that since the visit, Ireland had
recognized the serious problems with the evaluation and
demonstrated that it intended to give higher priority to
implementing the Convention. Senior Irish officials announced
that a Prevention of Corruption (Amendment) bill had been
approved by the government, which intended to move quickly to
introduce it to Parliament. The Irish delegation advised that
the bill will broaden the definitions for bribery and foreign
public officials and introduce extraterritorial jurisdiction.
They also reported that Ireland would consider including
whistle-blower protection in the new bill. The Irish del said
the peer-review examination had been valuable and Ireland wanted
to adopt best anti-bribery practices. A group of senior Irish
officials would be convened to review and implement WGB
recommendations.

6. (U) The WGB concluded that Ireland had not fully met its
Phase 2 monitoring obligations, but accepted Ireland's
invitation to carry out a Phase 2 bis examination with another
on-site visit within one year. The WGB recommended that Ireland
strengthen its foreign bribery legislation; consolidate or
harmonize the foreign bribery offense under the two overlapping
statutes to remove inconsistencies; expand corporate liability
for foreign bribery; clarify the scope of the relevant
legislation for companies; amend its laws to confirm that bribe
payments are not tax deductible; and ensure that Irish citizens
and corporations can always be effectively prosecuted for
foreign bribery offenses committed outside Ireland by promptly
establishing nationality jurisdiction under the Prevention of
Corruption (Amendment) Act 2001.

JAPAN SELF-ASSESSMENT

7. (SBU) The Chairman noted that the main difficulty with
Japan's Phase 2 examination was whether the system was geared to
generate cases and whether one could effectively initiate an
investigation. Japan conducted a self-assessment to determine
legal and procedural impediments to the effective investigation
and prosecution of foreign bribery. Japan had established an
inter-agency task force, which met 12 times, and held
consultations with experts, prosecutors and police. The GOJ
concluded the greatest obstacles were inadequate investigative
leads, the lack of reliable whistle-blowing information,
insufficient responses from Mutual Legal Assistance (MLA)
requests, limited information on investigative methods used by
other countries and insufficient foreign language abilities.


The Japanese del noted authorities needed to disseminate
information about the foreign bribery offense more widely, more
fully grasp the state of internal auditing and internal control
systems, and raise awareness regarding the Japanese
whistle-blower law that went into effect in June 2005.

8. (SBU) The Japanese delegation committed to raise awareness of
whistle-blower protection, utilize MLA requests early and
actively, conclude bilateral MLA agreements, actively use
voluntary investigative measures at the earliest possible stage
and exchange information among police, prosecutors, experts and
civil society. The Japanese del suggested greater focus on the
prevention of foreign bribery is appropriate, commenting that
cases and convictions were not the only criteria of success.
The Japanese del noted that a potential foreign bribery case
involving Japanese firm Kyudenko's activities in the Philippines
was under investigation.

9. (SBU) Lead examiners United States and Italy applauded Japan
for completing the self-assessment. The US noted that Japan's
passive approach to investigation and emphasis on maintaining
secrecy at the sacrifice of advancing cases needed to be
addressed. Not only did the placement of the foreign bribery
offense in the Unfair Competition Prevention Law (UCPL) rather
than in the Criminal Code appear to reduce awareness, but the
entities responsible for pursuing investigations (Ministry of
Economy, Trade and Industry (METI) and Ministry of Justice
(MOJ)) provided conflicting guidance. The U.S. also highlighted
that the whistle-blower law did not apply to employees of
Japanese companies based overseas. The principal recommendation
of lead examiners was on-going consultation and monitoring of
Japan's enforcement efforts. The Italian lead examiner echoed
US comments, and urged Japan to bring a case and build
experience in how to start prosecutions. He also noted that the
GOJ had shared no information about the Kyudenko case until
reports had appeared in the press.

10. (SBU) The Japanese del responded that the GOJ has been
proactive in ordering Japanese representations abroad to report
foreign bribery allegations, that prosecutors are trying to
identify evidence and have added enhanced MLA efforts, and
defended the Japanese emphasis on secrecy to avoid destruction
of evidence by suspects. In the 6 months since the
whistle-blowing law had been enacted, 2,000 reports had been
made, but the Japanese del conceded it needed to raise awareness
about the protection offered. The Chairman commented that the
key issue appeared to be how Japan can develop an allegation
into a filed case.

PHASE 2 FOLLOW-UP REPORTS

11. (U) Within one year of the WGB's approval of the Report of
Phase 2 Examination, countries must, at a minimum, provide an
oral report on steps they have taken or plan to take to
implement the WGB's priority recommendations. A detailed
written follow-up report must be provided within two years.

JAPAN WRITTEN FOLLOW-UP

12. (SBU) Lead examiners U.S. and Italy reported that Japan had
complied with many Phase 2 recommendations. Japan reported it
had reformed the UCPL to extend statutes of limitation,
requested MLA on two occasions, raised awareness of foreign
bribery, including of amendments to the corporate tax law and
income tax law expressly denying tax deductibility of bribes to
foreign public officials, and distributed amended 2007
Guidelines to prevent foreign bribery. The WGB found that Japan
had not implemented:

- Rec. 1(iv) to raise awareness of foreign bribery among the
legal profession; and


- Rec. 5(c) to clarify that UCPL prohibits all cases where a
foreign public official directs transmission of benefit to a
third party.

The WGB found that Japan had partially implemented a number of
recommendations, including:

- recommendation in preamble to Phase 2 recommendations re:
assessing impediments to effective investigation and
prosecution, make use of MLA at non-"filed" investigative stage,
increase law enforcement coordination and address difficulties
encountered in establishing and enforcing territorial
jurisdiction;

- Rec. 2(b) for METI to establish a formal system to effectively
process allegations of foreign bribery

- Rec. 2(d) on improving whistle-blower protection for those
reporting directly to law enforcement authorities;

- Rec. 3(a) to ensure all activities under article 8.1 of the
Convention are prohibited, including off-the-books accounts.

- Rec. 5(b) to ensure METI guidelines on facilitation payments
conform to the Convention and Commentaries.

The WGB found that Japan had satisfactorily implemented other
specific recommendations, but some follow-up recommendations had
not been the subject of sufficient practice and required
continued follow-up.

13. (SBU) The WGB agreed that, in order to continue moving this
positive process forward, Japan should provide a Phase 2 bis
follow-up report in one year. This will allow Japan and lead
examiners to consult and exchange views on progress being made
and for a brief report to the WGB. The WGB agreed that both the
written follow-up and the self-assessment would be published,
along with a summary of the discussion.

U.K. WRITTEN FOLLOW-UP

14. (SBU) The WGB found that the UK had implemented a number of
the WGB Phase 2 recommendations, but failed to enact
comprehensive foreign bribery legislation. The U.K. had no
foreign bribery prosecutions and its decision to drop the BAE
Systems plc investigation relating to Saudi Arabia highlighted
WGB concerns. The WGB found that the UK had made progress since
its March 2005 Phase 2 examination in raising awareness (e.g.
appointment of a UK anti-corruption coordinator); in continuing
to encourage Overseas Territories to adopt anti-bribery
legislation (UK verified compliance of Guernsey's legislation
with the Convention and Jersey's enactment of a foreign bribery
statute, but not yet extended the Convention to either island);
in providing additional resources to facilitate MLA and in
increasing capacity to investigate allegations of foreign
bribery (e.g. new Metropolitan Police/City of London Police unit
investigating foreign corruption allegations). Since March
2005, the Serious Fraud Office (SFO) had launched 6 new
investigations and had worked on 23 vetting files in an attempt
to develop enough information to open a case file. The UK del
expressed its optimism that its first foreign bribery
prosecution could be launched in 2007.

15. (C) The UK del claimed its existing law implemented the
obligations of the Convention, but noted the UK remains
committed to fundamental reform of its bribery laws. A Home
Office consultation report had concluded that no consensus
existed for moving forward a draft 2003 bill to enact
comprehensive corruption legislation. The issue has been
referred to the Law Commission, which was expected to prepare a

new draft bill within 18 months. WGB lead examiners France and
Canada underscored that 6 years had passed since the Phase 1
examination recommended the UK enact comprehensive foreign
bribery legislation. France noted this delay sent a negative
message regarding the UK's commitment to implement the
Convention as a whole.

16. (C) US del said the UK position that current legislation is
adequate to effectively implement the Convention was rebutted by
concrete evidence that it was not. US del also noted that the
WGB should ask the UK to do what it had asked Japan to do:
identify the structural problems that have prevented cases from
moving to indictment. The Chairman commented that the WGB had
long been doubtful regarding the UK's reliance on its
principal-agent element of bribery. The UK del noted that
evidentiary problems raised by some UK officials regarding the
BAE/Saudi investigation gave a distorted view of the
deficiencies of UK law, calling the Saudi case "wholly unusual,
if not exceptional" given the involvement of an absolute
monarchy.

17. (U) The WGB found that the UK had failed to implement:

- the recommendation in the preamble to the Phase 2 to enact at
the earliest possible date comprehensive foreign bribery
legislation;

- Rec. 3(a) to proceed with adoption of reforms clarifying and
unifying UK accounting legislation with IAS to ensure fraudulent
accounting offense is in full conformity with Article 8 of the
Convention;

- Rec. 5(a) to amend where appropriate the Code for Crown
Prosecutors, the Crown Prosecution Manual and other documents to
ensure investigation and prosecution of foreign bribery is not
influenced by considerations of national economic interest, the
potential effect upon relations with another state or the
identity of the natural or legal persons involved (Article 5 of
Convention); and

- Rec. 5(c) to broaden the level of persons engaging the
criminal liability of legal persons for foreign bribery.

The WGB also concluded that the UK had partially implemented 9
recommendations and satisfactorily implemented 8
recommendations.

18. (U) Following a further discussion of the BAE/Saudi
investigation (see below), the WGB agreed that it would conduct
a Phase 2 bis review of the UK focused on progress in enacting a
new foreign bribery law and in broadening liability of legal
persons for foreign bribery, examining whether systemic problems
explain the lack of foreign bribery cases brought to prosecution
and addressing other issues raised by the discontinuance of the
BAE/Saudi Arabia investigation. The review will include an
on-site visit to be conducted by March 2008.

19. (C) An extensive discussion of how the WGB would make public
this decision followed. The UK stridently objected to any
engagement with the media by the Chair regarding the review and
asked that only a WGB press release be issued. The Secretariat
argued that OECD practice is to be as open as possible with the
media, while respecting the confidential nature of the
discussions. After many delegations expressed confidence in the
Chair, the WGB agreed to allow the Chair to brief the press,
accompanied by OECD Legal staff and the director of the
Financial and Enterprise Affairs Directorate. Bilateral
interview requests made in the following several days would be
referred to the Secretariat.

TERMINATION OF BAE/SAUDI ARABIA INVESTIGATION


20. (C) Lead examiner France noted a number of issues were still
outstanding regarding the BAE/Saudi Arabia investigation,
including the materiality of the UK's national security
rationale. Lead examiner Canada said it accepted the
explanations given by the UK for reasons for discontinuing the
investigation, but had serious concerns about the UK's legal
framework and adequacy of its corporate criminal liability
legislation. US del asked whether the UK could provide any
assurances that BAE was not continuing to make corrupt payments
to Saudi officials and that MOD officials were not continuing to
participate in the alleged corrupt payments. The U.S. also
asked about evidence preservation and whether UK national
security concerns would pose an impediment to providing MLA to
other states.

21. (C) The UK del, which included Foreign and Commonwealth
Office, SFO, Ministry of Defense Police, Department for
International Development, Metropolitan Police and office of the
Attorney General (AG) officials, reported that the SFO was
reviewing the aftermath of the decision to discontinue in light
of its duty to ensure that the MOD Police, Export Credit
Guarantee Department (ECGD) and other bodies received all
relevant information to help them carry out their public duties.
The UK del advised that since no one has been charged and found
guilty, there are limitations on actions the UK government can
take and other fora must accept their responsibilities in
considering the case. The UK del advised that no evidentiary
material would be returned until the judicial review has run its
course. The SFO did not see a reason why national or
international security would prevent the UK from responding to a
request for MLA.

22. (C) The Chairman inquired further into the reasons for
discontinuance and asked whether the WGB should not deplore a
threat by a sovereign state to stop fundamental cooperation, if
Saudi threats to stop counter-terrorism cooperation were the
basis of the national security interests involved. He inquired
about how precise Parties must be in identifying risks and the
immediacy of danger posed before invoking national security.
The UK del advised that the SFO Director had considered only
national and international security grounds in reaching his
decision to discontinue the investigation. The judicial review
would address whether the decision-making process was valid and
whether the decision was in conformity with Article 5 of the
Convention. The Swiss del noted that it continued to be very
concerned about the effect of the UK decision, that it implied
that the UK would not prosecute allegations of foreign bribery
by its firms in Saudi Arabia, depriving other parties of a level
playing field there and possibly in other countries.

23. (C) In response to an OECD legal advisor's inquiries whether
the UK recognized international public policy and public
interest factors in favor of prosecution, the UK del (AG rep)
confirmed that the UK recognized that bribery was contrary to
international public policy and that the nature of bribery as an
offense was a powerful factor for prosecuting the act. In the
BAE/Saudi matter, however, he advised that the SFO Director had
considered protecting national security an even more important
factor. The UK AG shared this view, and also considered that
the case was unlikely to lead to successful prosecution.
Regarding the basis for identifying the national security risk,
the UK del said the UK ambassador to Saudi Arabia had considered
the risk that Saudi Arabia would withdraw counter-terrorism
cooperation to be real and that all who expressed views had
shared that assessment, including the UK's security services.
In response to an OECD legal advisor's query about whether the
ECGD had the right to refuse to provide official support to BAE
Systems in the future in light of the allegations in this case,
the UK del said it could not speak for the ECGD, which had its
own duties to implement anti-corruption policies and the right

to insist that BAE Systems provide due diligence information.

24. (C) US del stressed the difficulty in assessing from the
outside the factors taken into account in the UK's decision.
While concerns remained about the particular case, more critical
was what the case had revealed regarding the UK's legal
framework for preventing foreign bribery. As the Convention
approaches its tenth anniversary, the WGB must demand that all
parties meet their obligations and maintain high standards. The
French del spoke of the need to convey a clear message to the
business community and civil society that payment of bribes to
foreign public officials was no longer an acceptable competitive
advantage. The Canadian del agreed that abandonment of the
investigation created a problem for the Convention. Following a
discussion which frequently underscored the need to defend the
Convention, and which weighed the merits of various next steps,
France, Italy, New Zealand Greece, Chile, Germany, Ireland, the
Netherlands, Sweden, Spain, Turkey, Switzerland, and the US del
all expressed continuing serious concerns about the UK's
decision and spoke in favor of the WGB (1) issuing a strong
statement to the public relaying those concerns and (2)
conducting a Phase 2 bis review of the UK focused on Convention
implementation. Although Germany and Canada expressed a
preference for waiting until the results of the UK domestic
judicial review, a position strongly favored by the UK, WGB
consensus ultimately opposed such a delay.

SWITZERLAND WRITTEN FOLLOW-UP

25. (SBU) Switzerland reported that its Phase 2 examination had
contributed to greater awareness of its obligations under the
Convention and had spurred long-term cooperation among federal
and cantonal-level authorities, the Swiss business community and
civil society. Switzerland reported that 23 foreign bribery
cases were initiated in 2005 and 2006, of which 17 were in
connection with the UN Oil for Food program. A total of 19
cases were still in the investigative stage and four were
closed. No charges were pressed nor rulings handed down during
the period. Informed by comments from lead examiners Hungary
and Belgium, the WGB found that Switzerland had taken efforts to
raise awareness, but further measures targeted at small and
medium-sized enterprises and cantonal-level authorities were
required to fully implement WGB recommendations. Switzerland
had fully implemented:

- Rec. 3(a) to consider establishing a formal obligation for any
federal authority, civil servant or public official to report
indications of possible bribery to authorities and

- Rec. 3(d) to consider extending mandatory reporting
obligations for auditors to report to prosecutorial authorities
evidence of possible corrupt practices by those whose accounts
they audit if executive bodies refrain from taking action.

26. (U) Discussion of Switzerland's follow-up report revealed
certain difficulties encountered by the WGB in distinguishing
between full and partial implementation of recommendations and
highlighted the need for precision in recommendation text. In
several instances Switzerland had taken action in response to
recommendations, but measures had not yet been finalized.
Switzerland contended it had nonetheless fully implemented the
recommendations. The WGB ultimately found that Switzerland had
only partially implemented the remaining 8 recommendations.

REVISION OF ANTI-BRIBERY INSTRUMENTS: DRAFT MANDATE FOR
SUB-GROUPS

27. (U) The WGB agreed that Chairman Pieth and Vice-Chair
Gavouneli would serve as chairs of two ad hoc sub-groups on (1)
criminalization and (2) prevention issues, involving areas such
as export credit, official development assistance, public

procurement, auditing and non-tax deductibility. The sub-groups
are to be open and informal and their task will be to assist the
WGB in completing proposed revisions to anti-bribery instruments
by December 2007. This would include likely revision of the
1997 Revised Recommendation (requiring approval by the OECD
Council) and possible clarification in Commentaries regarding
interpretations of the Convention.

TOUR DE TABLE DEFERRED

28. (U) The WGB deferred reviewing country enforcement actions
on foreign bribery and UN Oil-for-Food cases to June, given the
press of other agenda items.

OUTREACH ACTIVITIES

29. (U) The Secretariat briefed on outreach activities,
including the anticipated signature in April of a Memorandum of
Understanding with the Organization of American States to
strengthen the fight against corruption in the Americas. The
Secretariat also agreed to provide suggestions on next steps for

SIPDIS
WGB outreach to China.

ANNUAL REPORT

30. (U) The WGB approved the 2006 draft annual report, after
agreeing to a UK request to delete a reference to the BAE/Saudi
investigation. US del noted that there was nothing
inappropriate with the proposed reference, but did not object to
its deletion. The French del noted that reference should be
included in the 2007 Annual Report.

OTHER ITEMS

31. (U) The Italian delegation briefed on the invitation by the
Government of Italy to hold a Prosecutors' Meeting in Rome in
November as part of an event marking the 10th anniversary of the
Convention in November or December 2007, which may involve
ministerial participation.

32. (U) The Netherlands del noted that differences in WGB
Parties' positions regarding UNCAC issues have complicated UNCAC
implementation. They proposed including an agenda item for the
October WGB plenary meeting to exchange ideas about how to
organize in preparation for the second UNCAC Conference of State
Parties.

33. (U) The US del suggested, with support of Dutch and Swiss
colleagues, that prosecutors plan to meet on the margins of the
June plenary for a brainstorming session to discuss the
usefulness of a prosecutors' forum. The UK requested that this
be scheduled for the same day as the Tour de Table to facilitate
attendance. The Chair suggested that the prosecutors also
provide guidance to the Italian delegation regarding the agenda
for the 10th anniversary event.

34. (U) The June WGB plenary meeting will take place June 19-21,
2007. (Ad hoc sub-groups were subsequently scheduled to meet on
June 18.)
MORELLA

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