New Zealand Yearbook of International Law
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Ruth Nicholls[*]
Corruption is a phenomenon that has attracted attention within the fields of politics and international law in recent decades. This paper provides a brief examination of the anti-corruption movement before focusing on the most recent initiative, the UN Convention Against Corruption, which opened for signature in December 2003. The object of this paper is to critically examine the UN Convention in light of the potential impact that it may have upon Pacific Island States. While there is a moral and political impetus to join in the fight against corruption, this paper argues that Pacific Island States should not adopt this document without careful consideration. With regard to the bribery, money laundering and good governance provisions, this paper illustrates that the implementation of this Convention would have a significant impact upon Pacific Island States.
Corruption has become an important issue in both international politics and law in recent decades. As its negative impacts have been increasingly recognised, members of the international community have initiated measures in an attempt to stem its tide. Such international measures have recently cumulated in the United Nations Convention against Corruption,[1] which opened for State signature in December 2003.[2] This paper examines the provisions and the potential impact of the UN Convention on Pacific Island States, and uses other international instruments to provide context to its provisions.
While there may be consensus regarding the negative impacts of corruption, this paper critically examines the compatibility of international anti-corruption measures for Pacific Island States. Part II grounds the anti-corruption movement in the reality that there is no definition of corruption. The paper therefore purports to examine bribery, money laundering and issues of good governance as elements of the concept of corruption. Part III provides a brief background of the anti-corruption movement by outlining a few of the major international instruments and actors. Part IV looks at whether custom and cultural practices in Pacific Island States may be construed as bribery, therefore questioning whether there is a place for cultural diversity in the UN Convention. Part V addresses the provisions regarding money laundering in the UN Convention and the economic impact of such provisions on Pacific Island States. Part VI then looks at the broad idea of ‘good governance’ in examining whether the proposed political changes would be consistent with the systems of government in Pacific Island States and would be accepted within these States.
In providing this brief survey of the potential cultural, economic and political effects of the UN Convention upon Pacific Island States, this paper concludes in section VII that it is not a document that Pacific Island States should enter into lightly. Rather upon ratification, a Pacific Island State would have to make changes within its State that may have significant consequences.
Pacific Island States are examined as their voice can be marginalised in an international forum. An illustration is that during the negotiation of the UN Convention, few Pacific Island States were present at the various negotiating sessions.[3] Pacific Island States are developing nations with limited resources and while this may limit their influence globally, it may also mean that they are heavily affected by international measures. Indeed, the small size and geographical isolation of Pacific Island States mean that they rely heavily upon foreign aid and few industries, making them vulnerable economically to change as well as influence from outside States. It is therefore important that any international agreement be seen to reflect (or at least not disadvantage) their own interests in order to warrant their accession to such an agreement.
Despite the proliferation of international anti-corruption instruments and the increasing attention paid to considerations of corruption within international organisations, there is a dearth of information on the definition of corruption. The term itself was originally coined to denote a moral wrong[4] and these morally laden connotations remain.
The international anti-corruption movement has not cumulated in a workable international definition of corruption. Indeed, while international instruments purport to combat ‘corruption’, they fail to define the term within their respective instruments. In regards to the UN Convention, an informal working group was established to construct a definition. The subsequent report noted ‘the informal working group stopped its discussion of definitions of the term “corruption” after it was recognised that discussion was associated with certain core issues representing a sharp division’ between members of the group.[5] This report reflects the contention and subjectivity in defining corruption.
While academics have attempted to define the concept, these conceptions of corruption vary significantly in nature. Therefore, the conception of corruption may be construed from examining the provisions of the respective Conventions.[6] Absent a precise definition, this paper focuses upon the provisions of the UN Convention concerning bribery, money laundering and good governance, which illustrate potential cultural, economic and political effects on Pacific Island States.
Bribery is considered, as it is the most internationally accepted form of corruption, featuring in all international anti-corruption measures. However, this paper contends that there are difficulties in applying such international standards and will look at the impact upon Pacific Island States’ cultural practices and at bribery provisions based upon the extraterritorial nature of the jurisdiction advocated within the UN Convention. Money laundering is also examined as an aspect of corruption. This is because it represents an extension of the concept of corruption, as it has not previously been included in anti-corruption measures. Moreover, it is also an issue that is highly relevant to Pacific Island States.[7] The provisions relating to good governance are also examined. This section examines the preventative measures advocated by the provisions of the Convention, which may potentially impact upon governance within Pacific Island States and questions the effectiveness of this top-down approach in these States.
While an examination of these areas suffices for the current discussion, it is important to note that the absence of a definition can mean that there may be inconsistencies in the application of Conventions by individual States, and this may create issues with regard to matters of international cooperation. The lack of definition for corruption may also be problematic in politicising the term. As long as it remains undefined, it becomes a political tool. For example, political opponents may accuse one another of being corrupt in a variety of circumstances, relying upon the moral connotations rather than explaining the substantive actions. Furthermore, there are no overriding goals of the anti-corruption movement. Indeed Windsor and Getz have commented that ‘gradually, and perhaps cynically, this campaign is becoming an expanding torrent in scope, intensity and participation’.[8]
International measures to address corruption are a relatively recent phenomenon and this may contribute to the lack of consensus regarding a definition of corruption. Indeed, the anti-corruption movement has only gained momentum over the last couple of decades. This is in stark contrast to the prior perception of corruption being ‘business as usual’ or a matter of internal concern for individual States. Such development reflects a growing consensus regarding the negative impacts of corruption. Salbu stated in 2001, ‘[o]ne would be hard pressed to find a law review article written since the passage of the FCPA in 1977 that is anything but highly critical of corruption and its effect on many aspects of the global economy’.[9] This change in the perception of corruption is a result of many complex and interacting changes in the international environment. This section outlines some of the key instruments and organisations in the fight against corruption.[10] These documents and organisations are important to provide both a background to the development of the UN Convention, as well as providing a context in which to understand and interpret its various provisions. These documents and organisations have both impacted and could impact upon Pacific Island States.
The FCPA was the first national statute to criminalise bribery of foreign public officials. While it was not initially emulated by other States, it has contributed to the adoption of international instruments a decade and a half later. The document itself has also added to the form and content of current international anti-corruption instruments.
The implementation of the FCPA reflects the political climate in the United States following the Watergate scandal. Subsequent investigations and hearings by the Securities and Exchange Commission revealed that bribery and illicit practices were numerous in international business transactions. The public attention generated by such findings contributed to the political impetus to criminalise such behaviour,[11] notwithstanding the potentially negative economic effects upon American businesses overseas. Congress subsequently passed the FCPA in 1977[1], which criminalises bribery of a foreign official and establishes provisions regulating accounting practices to prevent the concealment of illicit foreign payments.
The FCPA seeks to regulate ‘issuers’[12] with regards to the accounting provisions and bribery of foreign officials by ‘domestic concerns’[13] and ‘any person’.[14] It relies upon both territorial and nationality grounds for jurisdiction. This is a very broad jurisdiction,[15] affecting US businesses, citizens, nationals and residents of the United States irrespective of where the offence takes place. Foreign businesses and individuals are also affected if they are in the United States at the time of the corrupt conduct.
A few narrow exceptions and defences temper the FCPA. The ‘grease payment’ or facilitation payment exception applies to situations where payments are made to foreign public officials for routine government action as opposed to improper use of influence or position. Another exception is for payment of non-excessive travel and entertainment expenses. It is also an affirmative defence if payments are lawful in the country where the payment is made, or if payments are directly related to promotional payments for execution of a contract. However, such exclusions are very limited and have not been successfully invoked in court proceedings.[16]
The Inter-American Convention Against Corruption was adopted in 1996 and entered into force in 1997.[17] It is the multilateral equivalent of the FCPA in the sense that it is strongly influenced by the FCPA[18] and was the first international anti-corruption instrument of its kind. It requires States parties to criminalise acts of corruption identified in the Convention[19] and includes measures for extradition,[20] international assistance and cooperation.[21]
This Convention encompasses more than bribery of public officials in international transactions by working towards prevention, detection, punishment and eradication of corruption.[22] Indeed, it has been described as ‘a more ambitious and comprehensive approach to corruption’.[23] Notably, the OAS Convention includes preventative measures that States should consider including within their institutional systems,[24] such as introducing oversight bodies.[25]
While the Inter-American Conventions is based largely on the FCPA, it notably goes further than the FCPA by addressing ‘passive corruption’ (otherwise referred to as ‘indirect bribery’). This means that the acts of corruption with respect to bribery include both the solicitation and acceptance of a bribe,[26] as well as the offering or granting of such a bribe.[27] The acts of corruption also include fraudulent use or concealment of property as a result of corruption,[28] attempted corruption or lower degrees of participation in the act[29] or any other act by mutual agreement by two or more States parties to the Convention.[30] For example, transnational bribery, illicit enrichment, and acts described in article 11 (progressive development) are acts of corruption between States parties that have established such offences within their domestic jurisdictions.[31] Such provisions allow for flexibility for individual States to determine what acts they will deem to be corruption and ability for States to adapt to the terms of the Convention in their own time. States parties must also respect the laws of those States who have passed domestic laws concerning corruption. Even if these laws are not emulated in other States, the obligations to provide cooperation and assistance still apply to all member States.[3]
The States parties are to exercise (although not exclusively)[3] territorial jurisdiction,[33] jurisdiction over nationals or habitual residents,[34] and must prosecute where there is a refusal to extradite the national of another State party.[35]
The OAS Convention is silent on the subject of exceptions or affirmative defences, although commentators suggest that these would not be permitted.[36] However, it is criticised as being a much weaker document compared to other international instruments because there is ambiguity surrounding penalties for offences under the Convention.[37] There are other criticisms that some provisions are weak and that the Convention allows reservations.[38]
The Convention nevertheless represented an important step in the anti-corruption movement as it was seen to demonstrate ‘that even developing nations can unite to fight against international corruption and that this is not an issue that can only be pursued and achieved by economically advanced countries’.[39] That being said, it is important to note that the United States is a powerful and influential member of this organisation, which is mainly comprised of developing nations.[40]
Following a series of OECD recommendations on bribery,[41] the OECD Convention was passed in 1997 and entered into force in 1999. In effect, the Convention harmonises domestic law by establishing a lowest common denominator over the States parties to the Convention. The Convention does not require specific language to be incorporated into domestic law[42] but instead adopts a monitoring committee to safeguard the objective of the Convention and the consistency between States parties.[43] While Miller criticises the OECD approach as producing inequities between States parties,[44] the Convention reflects flexibility and national choice of implementation as favoured by the OECD, especially given that the organisation tends to be predisposed to publishing recommendations rather than treaty-making.[45]
The OECD Convention focuses on a specific model of corruption in the form of bribery of foreign public officials in international business transactions. The Convention obliges States parties to criminalise both the act of bribery of a foreign official[46] and any complicity or authorisation to such an act.[47] It also requires legal measures for accounting transparency so as to prevent facilitation of bribery of foreign officials or the hiding of such bribery.[48] The domestic law is to establish ‘effective, proportionate and dissuasive’ penalties for both natural and legal persons.[49] However, the OECD Convention, like the FCPA, exempts ‘facilitation’ payments and payments that are legal under the law of the host country. The commentaries disqualify local custom, tradition, or necessity as legitimate defences for the conduct.
A broad jurisdiction is to be adopted by States parties, including where acts occur either in whole or in part within the territory,[50] or over nationals abroad (where States allow such jurisdiction).[51] The Convention also requires each party to review whether jurisdiction under their domestic legal systems is effective and, where it is not, to take remedial action.[52]
Enforcement of the treaty obligations is strengthened by provisions for mutual legal assistance[53] and extradition[54]. The Convention States that its enforcement is not to be ‘influenced by considerations of national economic interests, the potential effect upon relations with another State or the identity of the natural or legal persons involved’.[55]
All thirty members of the OECD and five other non-member States have signed the Convention. Of the signatories, only Ireland has failed to ratify this Convention.[56] While the Convention is open for signature to non-member States (specifically those States that have become full participants in the OECD’s Working Group on Bribery in International Business Transaction), they are not necessary to the success of the Convention. Rather, the Convention is addressed at combating the supply side of bribery in transnational business transactions (‘active’ corruption), which is facilitated by the OECD States parties in which the majority of multinationals are concentrated. Moreover, the OECD ‘is comprised of the strongest industrialised nations in the world, nations accounting for about two-thirds of all global exports and about ninety percent of all foreign direct investment.’[57] The OECD comments in relation to its Convention that: ‘[a]s the largest exporters of trade and investment in the world, our multinationals represent, by far, the greatest potential source of bribe money. Given this situation, the supply side was a logical place for our countries to start’.[58]
The UN has been consistently involved in the anti-corruption movement. The General Assembly has passed anti-corruption declarations such as Resolution 3514 that was passed in 1975 and condemned all corrupt practices, and the UN Declaration Against Corruption and Bribery in International Commercial Transactions in 1996.[59] More recently, the General Assembly authorised the negotiation of an international convention to deal with the issue of corruption.[60] The negotiating committee was guided by resolution 56/260, stating that the convention should be ‘broad and effective’[61]and adopt a ‘comprehensive and multidisciplinary approach’.[6] The negotiation of the Convention Against Corruption has been relatively quick with the Convention becoming open for signature in December 2003.
Like the OAS Convention, the UN Convention combats ‘corruption’, which has a wider competence than the OECD Convention against the bribery of foreign public officials. It doesn’t define the term ‘corruption’ but adopts a more holistic approach to the issue of corruption. The stated purposes are:[6]
To promote and strengthen measures to prevent and combat corruption more efficiently and effectively;
To promote, facilitate and support international cooperation and technical assistance in the prevention of and fight against corruption, including in asset recovery;
To promote integrity, accountability and proper management of public affairs and public property.
In other words, the Convention is to apply to the ‘prevention, investigation and prosecution of corruption’.[63] The UN Convention is a comprehensive and extensive document, longer in length and encompassing more detailed provisions than previous international instruments. Like the OAS and the OECD Conventions, the UN Convention seeks to establish a harmonisation of laws across States parties based on the minimum standards as espoused in the Convention[64] while allowing States parties to implement measures in accordance with their own domestic systems.
While there have been criticisms of other international anti-corruption initiatives, specifically that they lack decision-making transparency,[65] the UN Convention is seen as more legitimate. It is significant as it is an initiative that has been undertaken by a greater number and broader diversity of States. At the same time, the wide range of States parties that were involved in negotiation affect the nature of the Convention. The Convention has even been criticised as not going far enough to reflect international attitudes towards corruption.[6]
Preventative measures are covered in the Convention in a similar fashion to the OAS Convention, but are subject to the ‘fundamental principles of its legal system’.[6] The essence of these practical measures is that State s parties should undertake measures that are proactive in enacting anti-corruption systems and practices[67] as well as monitoring and evaluating these measures both at national and international levels.[68] Specifically, States parties must establish a preventative body or bodies[69] with the appropriate degree of independence[70] to oversee these preventative measures and to act in combating corruption through law enforcement. While the wording surrounding these provisions is flexible and not all provisions bind States, it illustrates the Convention’s normative role as such measures are not purely legislative in nature. Examples of such measures include codes of conduct for public servants,[71] public procurement and management of public finances[72] and participation of society.[73] It also requires States to take measures to address corruption in the private sector as well as implementing accounting measures that are a feature in previous anti-corruption initiatives.[74]
Bribery features in the Convention as the clearest manifestation of corruption. Like the OAS Convention, the UN Convention addresses the bribe-takers as well as the bribe makers and it covers domestic public officials[75] as well as foreign public officials and officials of public international organisations.[76] Intention is a requisite component of bribery offences under the UN Convention. It also requires embezzlement, misappropriation or other diversion of property by a public official to be made an offence.[7] States parties should also consider possible offences such as trade in influence,[7] concealment,[78] abuse of function,[79] illicit enrichment,[80] and both bribery and embezzlement of property in the private sector.[81]
The broader conception of ‘corruption’ means that the Convention also includes provisions relating to money laundering[82] and laundering of proceeds of crime,[83] which will be discussed in more detail later in the paper. Matters relating to prosecutions are also included in chapter three of the Convention.[84] Other important aspects of the Convention include provisions with regard to international assistance and cooperation[85] and asset recovery.[86]
Unlike other anti-corruption conventions, the UN Convention includes a chapter devoted to the topic of technical assistance and information exchange.[87] The collection, exchange and analysis of information on corruption, including the effectiveness of anti-corruption measures, advocated by the UN Convention could create more educated policies and programmes.[88] The Convention also promotes State action in fields such as training programmes for anti-corruption staff.[89] While the notion of funding and technical assistance is acknowledged,[90] there are no funding targets and no obligations beyond States parties making ‘concrete efforts’ through a UN funding mechanism.[91] The details of such systems will be established by the Conference of the Parties.[92] Indeed, the impact that the UN Convention may have is unclear in some respects due to decisions of this body regarding both funding and other processes such as the existence and nature of any follow-up monitoring processes.[93]
Currently, the UN Convention is enjoying widespread support. As of 21 December 2004, one hundred and thirteen States are signatories to the Convention, with thirteen having ratified it. Politically, the US has taken a very strong position, advocating a ‘war on corruption’ similar to their ‘war against terrorism’.[94] The UN Convention will enter into force on the ninetieth day following the deposit of the thirtieth instrument of ratification.[95]
The changing international system has fostered new actors at the international level. Over time, international organisations have gained increasing legitimacy and authority at an international level, becoming key actors. These international organisations have consequently been instrumental in the international anti-corruption movement. Whereas States have been historically reluctant to become involved in the domestic affairs of other States, international organisations have been able to bridge this gap. They are able to assert the collective weight of their constituent members while simultaneously enabling States to distance themselves from such measures if desirable at both an international and national level.
The UN Convention is one instrument in a broad anti-corruption movement. The preamble to the UN Convention recalls the work of international and regional organisations in this field as well as taking note of other multilateral instruments that purport to prevent corruption. The organisations mentioned are the Council of Europe,[96] the European Union,[97] the African Union,[98] the OECD,[99] the OAS,[100] the Customs Cooperation Council and the League of Arab States. While these each deal with issues of corruption in a slightly different way, it is beyond the scope of the paper to go into more detail than is outlined in the preceding section. Rather, the UN Convention is examined because of its contemporary nature and as it is said to represent the views of a large and diverse group of States.
However, it is important to note that there have been a variety of complementary measures associated with addressing corruption. For example, action under the auspices of the United Nations includes the study of corruption as a development issue under the United Nations Development Programme, as a control aspect for the regulation of multinational corporations and as an aspect in drug smuggling and money laundering as considered by the UN Office on Drugs and Crime and the Commission on Crime Prevention and Criminal Justice.
Other international organisations have also adopted anti-corruption functions or have been targeted for involvement in the campaign. For example, the WTO is actively being pressured to take a more active role as it is perceived as being central to the fight against corruption specifically for its influence over developing States.[101] Other organisations such as the World Bank and the IMF have addressed the issue of corruption through measures such as aid conditionality.
The only NGO that is devoted solely to the issue of combating corruption is Transparency International (TI). It was formed in 1993 by former executives of the World Bank and has been very influential. This NGO works at both international and national levels with a focus on corruption prevention and reforming systems.
At the international level, TI raises awareness on issues of corruption, helps to reform policy (one instance being TI’s involvement in the negotiating sessions for the UN Convention) and monitors compliance with multilateral conventions. Furthermore, TI annually publishes a corruption perceptions index and a bribe payers index. These attribute a points system to individual States, ranking them on a scale from least to most corrupt. Such information provides an important perception of the worldwide problem and places countries that have performed poorly in the public spotlight, both at the national and international level.
On the national level, TI has established eighty-five independent national chapters around the world. These chapters focus on education, research, advocating policy reform and monitoring compliance at a national level. They also interact with business, encouraging businesses to adopt integrity pacts, committing them to refrain from offering bribes when bidding for public contracts. In addition to working with governments and business, TI provides support and encouragement for civil society to take a more active role in combating corruption.
For Pacific Island States, TI has established a number of chapters within the region, that work independently as well as functioning within the Transparency International Small Island Support Network. TI also has important educative functions with respect to corruption in the South Pacific by publishing national integrity studies of States. This is a particularly helpful resource as Pacific Island States are too small to be included on the bribe payers index or the corruption perceptions index.
The International Chamber of Commerce (ICC) is a world business organisation, promoting and providing support for international business. The ICC has members from over 130 countries and represents over seven thousand companies.[102] It also has been conferred general consultative status under the auspices of the UN Economic and Social Council. Corruption is a matter that impacts its members and this organisation has established a Commission on Anti-Corruption whose objective is ‘[t]o encourage self-regulation by business in confronting issues of extortion and bribery, and to influence international organisations that have developed international conventions to fight corruption’.[103]
To achieve this objective, the ICC has constructed a set of ‘Rules of Conduct to Combat Extortion and Bribery’ to provide assistance and guidance to private enterprises conducting international business. These rules have no binding effect but indicate that a business does not accept either active or passive bribery and promotes transparent record keeping. It also publishes a corporate practices manual for fighting bribery to complement these rules and to provide assistance for compliance under the OECD Convention.
The ICC also has a role with regard to international action. In 1996, the ICC issued ‘Recommendations to Governments and International Organizations’ which encouraged both national preventative and enforcement measures[104] and international cooperation. The ICC has subsequently contributed to the negotiations for the UN Convention by representing business views and is active in monitoring the implementation of the OECD Convention. It has also devoted significant efforts towards the need to address private sector corruption.
Attention has been targeted towards bribery as a subset of corruption because of the increasingly transnational nature of business transactions. While bribery was once seen as part and parcel of transnational business transactions, it is now viewed more critically. The theoretical argument is that bribery distorts economic certainty and impedes competitiveness in a free market system as costs associated with bribery are not expressly indicated, such as in tenders or proposals. It is therefore advanced that bribery represents an uncertain variable in a competitive market economy prioritising cost efficiency. While the argument that there might be uncertainty in the market holds sway in a number of circumstances, this may not always be the case. In some systems, bribery is so institutionalised that payments are predictable and uniform. An example would be a situation where it is common within a jurisdiction that a standard fifteen percent extra be added when dealing with public officials. In such circumstances, the expense of operating within a jurisdiction is not so uncertain, albeit not obvious to those unfamiliar with the locale.
Regardless of the institutionalisation of bribery in various economies, bribery is still recognised as the most identified form of corruption. It has been an obvious target for international action as Henning contends that all countries have criminal sanctions on bribing government officials.[105] Despite this action on the domestic level, there are still difficulties in finding an international standard to apply. Many States may view the concept of bribery differently and apply different legal standards.[106] This section looks at the obligations that may arise in the UN Convention (in light of the standards applied to the more established OECD and OAS Conventions) and contends that its application may raise potential issues for Pacific Island States.
The section first outlines issues regarding the definition of bribery as articulated in the UN Convention, examines whether custom in the Pacific Island States may breach the provisions of the UN Convention and illustrates an example derived from Pacific Island case law. The paper finally critiques the bribery provisions in light of application of extraterritorial jurisdiction as witnessed in the OECD Convention and expanded upon in the UN Convention.
The UN convention defines bribery of both national public officials[107] and foreign public officials and officials of international organisations.[108] For both, bribery is defined as:
the promise, offering or giving … directly or indirectly, of an undue advantage, for the official himself or herself or another person or entity, in order that the official act or refrain from acting in the exercise of his or her official duties…
In the case of foreign public officials and officials of international organisations, bribery must in addition be ‘in order to obtain or retain business or other undue advantage in relation to the conduct of international business’. This difference may be attributed to the fact that the UN Convention is emulating provisions of the OECD convention[109] and the additional condition need not apply to national officials as it may limit its scope.
The convention also addresses the demand side of bribery (also known as indirect bribery) by making an offence the:[110]
solicitation or acceptance by a public official, directly or indirectly, of an undue advantage, for the official himself or herself or another person or entity, in order that the official act or refrain from acting in the exercise of his or her official duties…
With regards to foreign public officials and officials of public international organisations, States need only consider adopting similar legislative or other measures, rather than being committed to adopting measures.[111] In such a situation, these officials might be liable in their own States if these States have also ratified the UN Convention.[112]
While it is grand corruption[113] that tends to invoke public outrage, it is important to acknowledge that bribery may occur at different levels of governance and on different scales. This paper distinguishes between grand and petty corruption,[1] as the latter may be more likely to represent a grey area where uncertainty about acts of bribery may arise. Moreover, it is this level of corruption that is more likely to be pertinent to Pacific Island States in light of the inclusion of offences for indirect bribery (i.e. the demand side) under the UN Convention. It is unclear whether the definitions of bribery in the UN Convention intend to include cultural practices such as gift giving.
The concept of ‘undue advantage’ is not defined in the Convention and it is possible that a gesture of custom or cultural practice could be interpreted as an attempt to bribe an official or to solicit a bribe. This is further deemed problematic in ascertaining the way in which traditional customs are practiced within a modern setting. These traditions must be respected while protecting against their potential abuse.
The Convention accommodates issues of cultural variance to a certain degree by stipulating that a bribe needs to be made or accepted intentionally. In one of the proposals submitted by the United States, it was purported that ‘it is recognised that a foreign public official cannot “unintentionally” solicit or accept a bribe’.[11] However, this condition is more difficult to substantiate in practice. As stated earlier, there is no definition of a ‘bribe’ or what constitutes an ‘undue advantage’ in the UN Convention. Indeed, Salbu states that: [115]
A bribe to some is a harmless gratuity to others. It may represent an expression of gratitude, appreciation, or loyalty; a display of etiquette; a form of entertainment condoned by local protocol; a socially expected form of post-transactional celebration between transactors; a legitimate compensation for expenses incurred; a necessary facilitator or expediter for services; a symbolic message conveying understanding of another’s needs; or an acceptable token of nominal value.
It may be difficult to establish what the intention of the participants was, absent clear evidence. While inference may be used as a tool in such circumstances,[116] there can be clear misunderstandings especially when transactions are of a transnational nature. Lack of cultural understanding in home countries may lead to prosecution of acts committed abroad that would not have been so prosecuted in the host country, based on the extra-territorial judicial reach advocated by the UN Convention.[117]
Such difficulties are complicated further through the offence of attempted bribery.[118] Establishing intention for the provision of attempted bribery highlights subjectivity in the relationship between bribe-maker and bribe-taker. Attempted bribery does not rely upon a link between advantage being afforded and a transaction taking place, but accusations and more importantly perceptions of impropriety. This may apply to situations where gifts given may be thought to be bribes.
It is unclear from the text of the UN Convention whether ‘undue advantage’ within the provisions for bribery includes grease/facilitation payments. While the text of the UN Convention is silent with respect to grease/facilitation payments, such payments are allowed under both the FCPA and the OECD Convention. The OECD Convention, while not including the exception of facilitation payments within the text of the convention itself, excludes such payments in the commentaries.[119] These commentaries adopt a narrow reasoning for the exclusion of such payments. They are excluded because such payments are not made ‘in order to obtain or retain business or other improper advantage in the conduct of international business’.[120] Furthermore, the commentaries contend that such acts are likely to be regulated within the host country and rather than criminalising such acts, it would be more helpful to support programmes for good governance.[121]
This matter of interpretation has ramifications for the conception of cultural practices, as it could allow them to be excluded from the definition of bribery. It is possible to draw similarities between gifts given in custom and grease/facilitation payments. While the motives and intentions of the bribe-maker are substantially different, theoretically the bribe-taker in both situations obtains an advantage, but it is not an advantage that significantly influences the bribe-taker’s behaviour. For example, a grease/facilitation payment may be made to the phone company to hasten the connection of a line. The phone company is not performing any task that it would not otherwise do. In the case of a customary gift, the gift would be given as part of an accepted practice, so would not constitute any requirement for the bribe-taker to act in any manner that they would not otherwise have done.
However, there are also significant differences between the exercise of these two practices. For example, facilitation payments are only theoretically acceptable for tasks that would otherwise be done. This means in practice that such payments are paid to persons who do not exercise a policy role. This is in contrast to a system of customary gift giving, which would not differentiate recipients on such a basis. In the least, if grease/facilitation payments were to be allowed under the UN Convention it would mean that cultural practices towards public officials who did not have a policy role could be covered by the grease/facilitation payments exclusion.
It is difficult to discern whether grease/facilitation payments are excluded from the UN Convention in the absence of any express intention in either direction. The preamble to the UN Convention notes the OECD Convention (amongst others) with appreciation and it is clear that the definition of bribery in the UN Convention is based on the OECD Convention. Indeed, Prevenslik-Takeda comments that the US advocated the language of the OECD in order to allow for the exclusion of facilitation payments.[122] On the other hand, the UN Convention itself deals with matters of good governance, and so the same reasons for justifying the allowance of such payments under the OECD Convention may not apply for the UN Convention, given the former’s limited scope. Moreover, while the US may interpret the language of the Convention as excluding grease/facilitation payments as not constituting an ‘undue advantage’ in order to ‘obtain or retain business or other improper advantage’, this approach has been criticised. Some academics believe that even if facilitation/grease payments do not require acts of officials outside their normal activities, these payments may provide a competitive advantage. For example, documentation such as a permit may be processed quicker with a grease/facilitation than without this payment. [123]
There may also be a change in attitude and practice concerning grease/facilitation payments. In assuming its legislative obligations under the UN Convention, the UK passed legislation with regards to bribery. This expressly stated that facilitation/grease payments would constitute an offence under the Act. This is significant as the subsequent practice of States may assist in determining the meaning of a treaty.[124] Furthermore, despite the contention that abolition of grease/facilitation payments is impractical with respect to conducting business in some jurisdictions,[125] large multinational corporations such as BP and Shell have made it their policy not to sanction any facilitation payments.[126]
The issue of allowance of grease/facilitation payments is likely to be one that is resolved by individual States who adopt the UN Convention and incorporate the offences within their own domestic legislation. It may also be a subject broached at subsequent conferences of the parties (if and when the UN Convention enters into force). The difficulties in the meantime arise from the inconsistent treatment of such payments. Indeed, the acts of British and American companies conducting business overseas will be subject to different standards according to the issue of grease/facilitation payments that in practice constitute different definitions of bribery itself. Such issues are relevant to Pacific Island States where ‘government officials impose or demand extra levies for provision of goods and services which they are expected to deliver in the normal course of their duties’.[127]
As stated earlier, there is a potential for cultural practices in Pacific Island States to be considered as bribery. Indeed, Salbu comments that ‘[t]he consensus regarding bribery is conceptual; the differences across cultures exist when the concept is translated and applied to specific behaviours’.[128] Given the extensive nature of the subject,[129] this paper will first look at general criteria that may be used to distinguish gifts from bribes, and a potential defence for such practices before looking at these issues in a practical context through cases from the Kiribati courts concerning the practice of ‘mweaka’.
The International Chamber of Commerce (ICC) has advised companies that there are three considerations to take into account regarding the difference between bribes and gifts. These are that bribes are made in secret as opposed to gifts being made in the open, bribes being made through intermediaries whereas gifts made directly and that bribes create conditions whereas gifts come with no conditions.[130] This paper will briefly address each of these contentions, highlighting the difficulties in applying any test as determinative in differentiating between a gift and a bribe.
It is assumed that bribery is a discreet act that occurs in private whereas cultural practices occur openly. Indeed, Fiji has adopted a system whereby civil servants must monitor any gifts they receive in gift registers. The Public Service Commission has issued circulars to regulate this practice.[131] However, the NIS Country Study Report stated that these gift registers are not closely scrutinised because of the prevailing belief that public officials are of high moral character and integrity.[1] This raises the question of how transparent systems such as gift registers should be. For example, whether the systems should follow the model of Fiji where gift registers are scrutinised by accounting officials of various departments or whether they should go further in being accessible to the public.
Furthermore, it is not sufficient to look only at whether the gift is made in a transparent manner. Other measures may include establishing within such a transparent system an amount that may be acceptable for gifts. For example, the Azerbaijani anti-corruption law[13] states that government officials should not accept gifts worth more than $50, handing them over instead to their office.[133] Such systems may be important in the Pacific Islands as is supported by comments made by Edward Natapei, the Prime Minister of Vanuatu. He stated that: [134]
In Melanesian culture there is a need for further clarification of that because when you have a friend visit families we tend to bring gifts and it’s important that we define when a gift is no longer a gift and constitutes corruption. Now this is where a lot of the leaders, especially in Vanuatu have failed because they tended to accept gifts from foreign nationals who have a bit more money to play with and they tend to give rather bigger gifts than our local people are used to. So when we say that’s corruption our leaders would say well that’s our culture, we’ve accepted that as part of a gift, so you can’t term that as corruption.
This raises not only the problem of the value of a gift but also the potential abuse of cultural practices by outside parties and the conflict between ideas of cultural practice and bribery.
This is not a determinative factor and it is difficult to see the reasoning for the inclusion of this distinction. It may be possible to argue that bribes are made through intermediaries so as to distance the act from the offender. However, the opposite could be argued, that a bribe is made directly in order to keep the transaction secret. In any case, such a division does not reflect modern business circumstances, which the ICC is meant to represent. Specifically, private enterprises conducting business in a foreign jurisdiction commonly act through intermediaries.
Conditionality is a vital difference in differentiating between a gift and a bribe. However, it is difficult to ascertain. As discussed earlier, it is a matter of common expectations as to whether a gift creates conditionality.
Given the uncertainties in distinguishing cultural practices of gift-giving from bribery, this section examines whether cultural practices or custom may be excluded under the UN Convention. While the UN Convention does not explicitly allow such exception, it may be construed by reference to the exceptions under the OECD Convention.
Both the FCPA and the OECD Convention include a positive exception from the offence of bribery where the offence involves an act that is legal within the host country. This may also be imputed to the UN Convention on a wide interpretation of article four, that States should not interfere in the domestic affairs of other States. This exception would therefore be consistent with this provision in order to respect the law of other member States. While such a construction appears to exempt cultural practices, the OECD commentaries distinguish between those acts that are accepted as law, whether it is written or in case law[135] and those that are accepted as local custom or tolerated by local authorities.[136] Only acts in written or case law provide a defence. Therefore, the legality of cultural practices may hinge upon recognition of these acts within the laws of individual Pacific Island States.
While this defence would recognise legitimate cultural practices as distinct from acts of bribery, this approach has attracted criticism. In the very least, it is a complex process,[137] requiring the courts of a prosecuting country to interpret the acts in question under foreign law. While courts may participate in such endeavours through the ordinary occurrences of private international law, such a system may also be viewed as ‘intrusive’ for issues of bribery.[138] Salbu argues that the meaning and regulation under local law may be distorted by the interpretation of language and cultural connotations by a foreign court. Even if there is a defence, this uncertainty regarding the interpretation of acts by foreign courts may negate the effectiveness of such a defence.
An illustration of the difficulties of distinguishing cultural practices from bribery under the UN Convention may be illustrated by looking at the practice of mweaka in Kiribati. Mweaka refers to the traditional practice of gift giving, often at community events in Kiribati. Such gifts are also given to village elders as a symbol of goodwill and are often in the form of tobacco. These gifts may fall under the definition of bribery under the UN Convention. A succession of cases within the Kiribati courts has shown uncertainty in distinguishing bribes from this traditional practice[139] as the defence of mweaka has been upheld in some cases but not others. Therefore, it is possible that even if a defence is allowed based on the case law of Kiribati, the application would be problematic. Indeed, Muhammad CJ made obiter comments to the extent that Parliament should create written law, governing customary gifts such as mweaka.[140]
There is a lack of clear jurisprudence distinguishing mweaka from acts of bribery as judges have adopted different approaches. This case study will specifically look at the judgements of Teiwaki v Tenieu[141] and Teannaki v Tito,[142] which both involve situations where electoral candidates gave tobacco at village maneabas (meeting houses). In the former case the act was construed as bribery whereas in the latter case the defence of mweaka was upheld.
The cases were approached in two distinct ways. Muhammad CJ looked to the intent of the accused in Teiwaki v Tenieu, deciding that the acts in question were part of the electoral campaign rather than the performance of customary obligations, as claimed. In doing so, he looked at the past behaviour (with a focus on intention) of the accused and the acts of other candidates. Specifically he deemed that the gifts did not come under the exception of mweaka because the accused had not given such gifts on previous occasions, nor had any other of the candidates given similar gifts.
Alternatively, Teannaki v Tito examined whether these acts could be constituted as a cultural practice. A determinative factor was the context of the act,[143] whereby the gift was examined to ascertain whether it was culturally appropriate. Indeed, the case of Teiwaki v Tenieu was distinguished on this point.[144] Intention was not a key factor, although this case may be distinguished from Teiwaki v Tenieu on this point as in a majority of the villages, the accused explicitly stated that the gifts of tobacco were given in accordance with customary practice. The defendant also commonly made such gifts. In contrast to Teiwaki v Tenieu, it was not a factor that other candidates had not given mweaka. Rather, it was considered that there were both expected and unexpected forms of the practice.[145]
In these cases the ICC guidelines would not assist in delineating this cultural practice as distinct from a bribe. Transparency was not considered a factor. For example, a witness in Teannaki v Tito recalled that mweaka was not a practice usually made publicly.[146] This was further supported in a latter case where the courts recognised that mweaka is often made by discreetly passing an envelope containing money.[1] The distinction between a gift made directly or a bribe made through intermediaries also does not apply. While the acts did not involve intermediaries, evidence was produced in Teannaki v Tito that indicated the practice of government officials offering mweaka on behalf of the government. In this situation, the fact that the gift was made by an intermediary is more suggestive of a legitimate act, rather than an illegitimate one. The final distinction of conditionality also proves unhelpful. The impression from the ICC guidelines is that this conditionality is the basis of the payment. This is complicated by perceptions as illustrated in Kiribati where authoritative evidence was produced on both sides, debating the issue of conditionality even where the act complained of involved the gift of tobacco that had an equivalent value of less than a dollar.
Muhammad C.J stated that there is ‘no doubt that over the years the term “mweaka” has come to be abused’.[1] This may also be a possibility when the defence is claimed in a foreign jurisdiction, especially given the uncertainty of interpretation in domestic courts. Indeed, the cases in Kiribati provide no clear rules with regards to distinguishing the mweaka from acts of bribery. In foreign jurisdictions, the scenario would commonly involve an alleged act of bribery committed by a non-Kiribati national. It is unclear how such cases would be approached within the domestic courts and whether the focus would be placed more on intention or to the adherence of custom. Therefore, the foreign court would be interpreting the practice of mweaka from their own perspective in order to ascertain whether the defence could apply. Another difficulty is where new scenarios involving mweaka may come before foreign courts. For example, while tobacco is a common form of mweaka, the Kiribati health ministry has promoted the use of sports equipment instead.[148] If a case involving sport equipment came before a foreign court and it was considered a modern interpretation of the traditional practice, this could be imposing foreign values upon a traditional Kiribati practice.
Given this analysis, Pacific Island States should be wary of adopting the UN Convention before matters regarding cultural practices are discussed, and should be critical of the application of such provisions to acts within their territory. While cultural practices may be acknowledged under possible defences, this application may have significant shortcomings in practice.
It is true that cultural practices may be abused to facilitate corruption and that their use may complicate the nature of transnational transactions by imposing a cultural dimension. Indeed, there are various academics who purport that adherence to cultural practices and custom should not be recognised in international instruments as they provide an obstacle to its implementation.[149] While these arguments have received support in the international arena, this paper maintains that ignoring cultural diversity and practices of States is to impose a form of cultural imperialism.[150] However, it is important to acknowledge the viewpoint that cultural practices may be contrary to the objectives of the anti-corruption movement and some of these main arguments are summarised below.
If cultural practices exist within States, those entering in business transactions within these jurisdictions often emulate such custom. This is important as it may engender respect and understanding between the two parties. From the perspective of the foreign entity involved, it is good business sense. Not participating in such an act may put the entity at a competitive disadvantage, all other things being equal. In any case, such practices are seen to engender a feeling of familiarity and friendship.[151] Simultaneously, the adherence to such cultural practices may concern business people who may be wary of prosecution at home.
These practical implications have involved transnational corporations in the anti-corruption movement. One of the many causes for the focus on corruption was the perception that corruption was negatively affecting transnational business. However, States and business have also supported international measures as corruption has also been viewed as an issue of competition. The implementation of the FCPA in 1977 significantly preceded international instruments and similar measures were not adopted by other States. From an American perspective, international anti-corruption measures were needed in order to ensure competitiveness for US companies,[152] and represented the motivation for US action. Indeed, France was originally critical of the OECD Convention, concerned that the ‘anti-bribery campaign is a ploy by US government and U.S. companies to regain competitive advantage’.[153] This business perspective (advocating transparency and equality between companies) is important as it is a motivating force behind the UN and OECD Conventions.
As mentioned earlier, corruption has certain moral connotations within its ordinary use in language.[154] This has an effect on the nature of corruption instruments. For example, the criminalisation of foreign bribery in the form of the FCPA was seen to be a moral action,[155] which can be seen as a product of the public outrage in the aftermath of the Watergate scandal.[156]
The moral dimension to corruption is still present in the anti-corruption movement today. For example, Crutchfield George and Lacey view international anti-corruption measures as a means of behaviour modification with an important step ‘to change cultural norms and perceptions regarding bribery and corruption’.[157] They draw an interesting analogy between corruption and slavery, drawing the conclusion that people will begin to consider corruption immoral in the same way that countries changed their view about slavery.[158] This is a dramatic statement that equates bribery and corruption with discrimination and denying individuals of basic rights, especially when the authors do not define their conception of corruption. Such a powerful stance may not reflect the different scales of corruption identified in this paper.
Following the OECD Convention, Salbu wrote that it is ‘highly unlikely that all the world’s nations will join the present effort, as it is unlikely that the world’s nations will ever act collectively’. It is difficult to achieve consensus of nations not only as a by-product of international relations but also because of the vast number of States with different cultures, ideologies and agendas. The same is true for finding common ground on the issue of corruption. Some commentators identify culture as a barrier to international agreement. Kim and Kim write that: [159]
[o]ne of the most serious challenges against international efforts to combat bribery comes from those countries that assert that cultural differences must be respected in any attempt to reach an international consensus against bribery.
However, to not respect such opinions is to ignore valid concerns. Indeed, this paper highlights that international measures could have significant effects both on the economies and practices of Pacific Island States. That is not to say that international measures are theoretically incompatible. While cultural issues may be a ‘serious challenge’, finding a way to accommodate these perspectives will create a stronger consensus in the long run. Therefore, it is inappropriate for the UN Convention to implement its provisions with extraterritorial effect, impacting upon Pacific Island States where such States have not been involved in the process of consensus building.
This paper has discussed the bribery provisions under the UN Convention and has criticised the lack of clarity regarding the distinction between bribery and cultural practices. However, it is also important to note that both bribery provisions and other provisions under the UN Convention may affect Pacific Island States’ business and economies, whether or not such States are parties to the respective conventions. This occurs through the extraterritorial application of the conventions, as has occurred with the OECD Convention. Moreover, this issue is significant under the UN Convention as it adopts more comprehensive sources of jurisdiction than have been used in previous anti-corruption instruments, reflecting an intention for States parties to have a very wide jurisdiction in order to prosecute offences under the Convention. Consequently, this may have a greater impact upon Pacific Island States that choose not to become a signatory than previous documents, and is a source for further criticism.
The UN Convention allows jurisdiction in the case where the offence is committed in the territory of the State party[160] or by a national of a State party.[161] Both these sources of jurisdiction are well accepted. Territorial jurisdiction is the most widely accepted form of jurisdiction[162] and the nationality principle is equally acknowledged, albeit used to a lesser extent depending on the practice of individual States.[163]
Other international instruments have adopted further sources of jurisdiction. One illustration is that under the OECD Convention, it is expected that remedial steps will be taken if jurisdiction is not sufficient to carry out the objectives of the convention. The UN Convention also promotes other forms of jurisdiction, albeit in a different manner than the general term of the OECD Convention. In fact, the UN Convention goes further than previous documents by extending the grounds of jurisdiction to situations where an offence is committed against a national of the State party,[164] or the State party itself,[165] which are representations of the passive personality principle and protective principle of jurisdiction. The inclusion of the passive personality principle is an important development. While States have accepted its inclusion through the process of negotiating the UN Convention, this ground has been considered the ‘least justifiable’ ground for jurisdiction[166] and it is rarely advanced in the practice of States.[167]
Another controversial ground of jurisdiction under the UN Convention is where there is an offence involving a lower degree of participation[168] in the laundering of proceeds of crime. Where such an act occurs outside a State but with a view the commission of the offence would occur within the territory of a State,[169] the State may claim jurisdiction. This version of the objective territorial principle[170] may be considered controversial because there has been no tangible impact upon the State that claims jurisdiction. It is not necessary that the crime be committed, an attempt to commit a crime in the jurisdiction will suffice.
The expansion of the grounds of jurisdiction reflects the importance conferred upon the fight against corruption by its member States. While it is currently unclear about how States may exercise jurisdiction in practice, this paper criticises the imposition of such measures upon Pacific Island States through this broad jurisdiction.
While money laundering had formerly been targeted by international anti-crime initiatives, the UN Convention includes these acts under the concept of corruption. This is a significant expansion upon previous anti-corruption instruments that has important implications for Pacific Island States.[171] While Pacific Island States do not explicitly condone money laundering, the use of their national jurisdictions as both offshore financial centres (OFCs) and tax havens is criticised for facilitating money laundering within their jurisdictions. This paper does not purport that money laundering is a positive act or that it is culturally justified in a similar fashion as was discussed in respect of bribery. Rather, the paper will address how provisions in international corruption instruments may significantly affect the economies of Pacific Island States, challenging the adoption of the UN Convention by Pacific Island States.
Money laundering may be defined as the ‘recycling of criminally derived funds through normal financial system operations with a view to making the funds available for future legitimate (or illegitimate) use.’[1] It is distinct from tax evasion where a person seeks to take legally earned income and either hide or disguise such an amount to avoid the taxes associated.[1] There is not one set procedure for money laundering although three primary forms of this process may be identified. Firstly, there may be a three-stage process where illegitimate funds are ‘moved from direct association with a crime; secondly disguising the trail to foil pursuit; and, thirdly, making the money available to the criminal once again with its occupational and geographical origins hidden from view’.[173] Offshore financial institutions can protect the source of these funds through the application of both bank and corporate secrecy laws, inhibiting authorities from following the money trail. The other means are to simply deposit the illicitly acquired money into apparently legitimate companies that are used to justify its source, or to place the funds in a location safe from seizure.[174]
Essentially, money laundering is a crime that involves legitimate transactions involving illegitimate funds. It is often transnational in nature, and multiple jurisdictions may be utilised to create ‘jurisdictional confusion’ to inhibit authorities following the money trail.[175] Money laundering is considered an act of corruption because it enables those involved in covering up a criminal offence to benefit financially (from the original illegal act). Whereas money laundering is typically associated with the illegal drug trade,[176] it has been the subject of increased attention following 9/11 and amidst the US ‘war on terrorism’.[177] Despite the irony that terrorists do not tend to launder money,[178] this political environment has led ‘to a more vigorous and extensive anti-money laundering regime as great urgency is given to requirements to know customers and exercise due diligence, and to freeze and confiscate terrorist funds’.[179] The measures in the UN Convention reflect this contemporary environment and the impetus towards transparency in economic transactions.
Pacific Island States utilise the offshore services sector. This sector is characterised by its international nature,[180] as the facilities provided cater to international clientele as opposed to the domestic sector. However, as OFCs and tax havens have characteristics that facilitate the mobility of international funds,[181] Pacific Island States may be subsequently associated with money laundering when these facilities are abused.
Key features of both tax havens and OFCs[182] include favourable tax rates for non-resident monetary deposits, stringent bank secrecy laws, lack of information exchange and lack of transparency.[183] OFCs provide further financial services such as institutional structures and policies to facilitate foreign investment.[184] They may be defined as ‘a jurisdiction which has been specifically created by law to operate a relaxed financial regime’.[1] The nature of individual OFCs differs dramatically in both the services they offer and the level of regulation that they impose upon their customers.
OFCs have legitimate uses in global finance,[1] and work with ‘highly reputable financial institutions in the major financial centres of the world’.[186] Indeed, money laundering consists of a series of innocent acts that add up to an attempt to hide the proceeds of a crime.[187] With regards to transnational crime, it is not the use of OFCs and tax havens that are illegitimate, but it is their abuse. The main reason both offshore financial centres and tax havens are criticised as allowing criminal activities such as money laundering is due to their stringent adherence to secrecy laws.[188] These laws are controversial as they expand upon the traditional duties of confidentiality by imposing criminal sanctions on those that reveal information regarding transactions.[189]
The provisions under the UN Convention attempt to harmonise the domestic laws of its States parties to ensure prosecution of money laundering offences. They also seek to alter the nature of the institutions and characteristics of OFCs and tax havens that may facilitate money laundering offences. Given the transnational dimension of money laundering, the UN Convention also contains provisions governing international cooperation. These measures potentially affect the financial markets sectors of Pacific Island States.
Under the UN Convention, States parties are required to establish acts of laundering of proceeds of crime as criminal offences.[190] The application of this provision depends upon the establishment of an original illegal act being committed (known as the predicate offence). This may be complicated where States have adopted different crimes as establishing a predicate offence or where an act has a transnational dimension. This complication is acknowledged by the UN Convention. States parties are encouraged to apply the ‘widest range of predicate offences’,[191] and must include offences under the Convention as predicate offences.
Acts of money laundering are identified in the UN Convention. The conversion or transfer of property,[192] the concealment of the true nature of property,[193] and acquisition or possession of property[194] are considered acts of money laundering where there is the requisite knowledge that the property or other asset is the proceeds of a crime. Furthermore, other acts related to money laundering should be established as criminal offences, depending upon the basic concepts of a State’s legal system.[195]
As recognition of the capacity of OFCs and tax havens to enable money laundering, States parties are required to ‘[i]nstitute a comprehensive domestic regulatory and supervisory regime for banks and non-bank financial institutions’.[196] Indeed, the range of proposals reflects the ambitious aims of the provision, to deter and detect all forms of money laundering.[197] The regime is supposed to emphasise accurate identification of customers and beneficial owners, record keeping and the reporting of suspicious transactions.[198]
Pacific Island States would be affected by provisions restricting the application of bank secrecy laws. These require States to overcome obstacles arising out of the application of bank secrecy laws within their domestic courts[199] and allow such information to be available for requests of mutual legal assistance.[200] Bank secrecy laws or offences involving fiscal matters are not adequate grounds to decline requests for mutual legal assistance.[201] Similar to the OAS Convention, information may not be used for purposes beyond the reasons set out in the request for mutual assistance,[202] although there are no concrete means to protect this.
Non-binding provisions in the Convention also encourage transparency for corporate entities,[203] that are used to take advantage of corporate secrecy laws (that also exist in a number of Pacific Island States). Their popularity may be reflected by the fact that as at 1 June 1997, 2903 such entities were registered with the Vanuatu Financial Services Commission. [204]
Under the UN Convention States parties are required to prevent the establishment of banks that have no physical presence and that are not affiliated with a regulated financial group.[205] This would seriously impact Pacific Island States who utilise these ‘shell banks’, which are simply created on receipt of the appropriate fee. Provided they don’t offer services to the resident country, their books are not examined or their practices controlled.[206] Rather, they are used to take advantage of the accompanying secrecy laws. These banks may be used by money launderers who may pass money through their bank and then close the bank and/or destroy the records.[207] Some Pacific Island States have registered an extraordinary amount of banks within their jurisdiction compared to the size of the population. For example, in 2000 when the New York Bank scandal became public,[208] Nauru had four hundred offshore banks registered to one mailbox.
While this practice may be criticised, the UN Convention advocates quite a stringent response. States parties should consider forbidding their banks to do business with such institutions.[209] If States adopted these measures, it would restrict the activities of Pacific Island OFCs and could deter legitimate as well as illegitimate customers. This would have a dramatic economic impact. Furthermore, while they may be used for illicit purposes, shell banks represent a steady and reliable source of government revenue.
Furthermore, provisions relating to asset recovery require States to impose further regulation upon financial institutions acting within their jurisdiction in order to detect suspicious transactions. For example, financial institutions must identify holders of high value accounts and scrutinise accounts held by prominent public officials.[210] This provision would place additional responsibilities on both States and financial institutions. The motives behind these measures are to address grand corruption exercised by State leaders and highly ranked officials, allowing for the confiscation of such assets. One recent example is that the US plans to return $20 million to Peru that was stashed in US bank accounts by a corrupt Peruvian official.[211] While these measures may succeed in some cases, they may also be viewed as disproportionate. Such illegally acquired funds may be traced after the alleged event, as was the case with the Peruvian official. Furthermore, officials may still avoid these checks.
The Convention advocates international cooperation with regards to offences outlined between national authorities (including public authorities, public officials and authorities responsible for investigating and prosecuting criminal offences)[212] and cooperation between national authorities and the private sector.[213] Further provisions are developed in respect of money laundering.[214] States should ensure that anti-corruption authorities are competent to cooperate and exchange information at national and international levels[215] and consider establishing a financial unit.[216]
While provisions for the exchange of information appear relatively harmless, such exchanges may adversely affect any secrecy laws. Indeed, Renee Lal contends that Vanuatu is not a party to any tax treaties because the information sharing obligations would breach the privacy rules of Vanuatu.[217] Such exchanges may also be used for unintended purposes, for example to implicate cases of tax evasion.[218]
States are also to afford each other the widest measures of mutual legal assistance in investigations, prosecutions and judicial proceedings.[219] Particular means of mutual assistance are also articulated.[220] Such provisions are consistent with regional initiatives.[221] While acknowledged on a regional and international level, there has been no implementation of the obligations domestically. [222]
While money laundering is a form of corruption, some Pacific Island States may be unwilling to implement regulations. This is illustrated by the fact that the provisions advocated in the UN Convention are derived from a number of other international instruments and regional initiatives, which have not significantly altered the practices of Pacific Island States.[223] Furthermore, the deletion of stronger provisions regarding money laundering during the negotiation of the Convention highlights that there is some reservation about the effects of these regulations.
The decision to adopt this Convention should be a balancing exercise between international and domestic concerns for Pacific Island States. The effects of the Convention need to be appropriate both to the possibility of the crime occurring (as discussed earlier, it is not the existence of OFCs and tax havens that creates money laundering but their abuse) as well as the impact that such regulation would have on Pacific Island States. This section examines the potential impact of these measures given the nature of the Pacific Island OFCs, the economic reliance of Pacific Island States upon the financial services industry, as well as whether technical and financial assistance provisions in the Convention may mitigate short-term loss.
Pacific Island States have obtained unwelcome notoriety with respect to accusations of money laundering.[2] Most notably, the region gained worldwide attention in 1999 once it was revealed that the Russian Mafia had used the Bank of New York and had laundered money through the jurisdictions of small Pacific Island States. Law enforcement agencies contended that the case involved up to $15 billion and that they were hampered in their efforts by the lack of cooperation from Pacific Island jurisdictions, especially Nauru.[2] It is thought that $3 million was channelled through the Nauru’s Sinex Bank alone. Nauru and other Pacific Island States were in the media spotlight for their involvement and a number of banks[225] even went as far as to suspend US dollar transactions with Nauru, Palau and Vanuatu for not taking sufficient precautions against the possibility of money laundering.[226] This was the first time such action had been taken against any country. [227]
Pacific Island States have since been targeted both by the media and by international organisations[228] to increase the regulation of financial institutions within the region. Van Fossen attributes the attention to a shift from identifying suspicious transactions to identifying suspicious countries.[229] Such an approach punishes these States such as Nauru, looking at the context in which corruption occurs rather than addressing those who are committing the crimes of laundering itself.[230]
As suspicious countries, Pacific Island States have faced more attention and have been subject to adverse publicity in attempts to force these States to increase regulation of their financial sectors. In 1998, a UN report identified as financial havens the Pacific Island States of the Cook Islands, the Marshall Islands, Nauru, Niue, Samoa and Vanuatu.[231] A further example has been the ‘name and shame’ initiative used by the Financial Action Task Force. While several States named by the organisation subsequently amended domestic law in light of the recommended initiatives,[232] Nauru was one Pacific Island State that did not implement such changes and was subsequently named on the organisation’s list as a ‘non-cooperative’ jurisdiction. More recently, Niue, Nauru and Vanuatu have obtained an international reputation among financial centres as safe havens for illegitimate or ‘dirty’ funds.[233] Van Fossen claims that Pacific Island States are easy targets for measures unlike other OFCs that remain unlisted by international organisations, as they have relatively little political power or media connections.[234]
The debate surrounding OFCs and tax havens is not exclusively confined to Pacific Island States. Indeed, the mention of having a Swiss bank account or an account in the Cayman Islands conjures images of financial illegality. Such infamous jurisdictions have consequently introduced more domestic regulation. Switzerland, for example, has retained a market for money laundering (receiving funds that have most likely been pre-washed elsewhere), but has reduced the stringent nature of the secrecy laws and has subsequently taken steps towards greater international cooperation,[235] albeit as a result of international pressure.
However, not all OFCs operate in the same manner. For example, the Financial Stability Forum has differentiated OFCs according to levels of regulation. Pacific Island States such as the Cook Islands, the Marshall Islands, Nauru, Niue, Samoa and Vanuatu were all categorised as group III OFCs, that is, those with the lowest quality of financial supervision and a threat to the international financial system. This is contrast to group I OFCs such as Switzerland, Singapore and Luxemburg that are seen to be cooperative, supervised and of no danger.[236] This is a result of the fact that Pacific Island OFCs were created to fill the niche market left open by OFCs such as Switzerland.
Furthermore, Pacific Island OFCs are at a disadvantage in comparison to States such as Switzerland. They are small island States that have utilised the offshore financial sector for its economic opportunities. They do not attract investors as a result of a stable economy and political climate but rather because of the perceived desirability of their relaxed regulations. This is reflected by the US State Department’s description of Pacific OFCs as follows: [237]
These islands tend to have a laissez-faire approach to their banking rules and regulations. This regulatory philosophy was created specifically to prevent effective oversight of the offshore sector. As a result, governments in most of these nations have little or no control over their OFCs.
The role of the State is simply to ensure privacy and secrecy by ensuring minimum regulation.[238] This is criticised as being the equivalent of a ‘sale of sovereignty’ because in essence, States such as the Pacific Island States are allowing foreigners to benefit from the protection of the State for a price.
It would be difficult for Pacific Island States to combat their present reputation and to establish more regulated regimes such as those in Switzerland and Singapore. Not only would they need to adopt legislative measures, but they would also need the capacity to efficiently implement these measures, combat the negative associations of the region and ensure potential customers of political stability. Any such change would likely be a long term rather than short term transition. Therefore, any benefits from the implementation of these measures may not be immediately measurable.
While there is potential criminality within the jurisdictions of these Pacific Island States, it must be acknowledged that the use of the financial services market is a valuable financial resource for the developing States of the Pacific. Indeed, such financial havens are often based in States ‘with growing populations, limited resources and a crisis in their traditional sources of livelihood’.[2] An important perspective in considering the issue of money laundering in light of consequences of the UN Convention is that of Blum et al.:[2]
It is popular to decry the operation of such financial havens, and it is certainly true that they can have a harmful effect, particularly in terms of facilitating tax evasion and secondarily as places that foster money-laundering. It is however necessary to show some understanding of their positions, their economic vulnerability and their lack of alternative resources. Enacting regulations may have disastrous effects for Pacific Island economies. This may occur more as a consequence of the perception of regulation as opposed to the regulations themselves.
Perceptions may be more detrimental than the considerations themselves because, as stated earlier, the competition amongst OFCs is fierce.[240] Pacific Island OFCs rely upon favourable conditions as opposed to factors such as the stability of their economies. An illustration is that Samoa’s OFC has promoted its services partly on the basis of a relatively quick registration process and a minimum of red tape.[241] Therefore, the introduction of regulation of these sectors might make other havens more attractive and cause these States to lose customers to other jurisdictions.[242] This would cause serious economic effects.
The financial market sector is an important contributor to the economies of some Pacific Island States. For example, the tax haven industry of Vanuatu has been attributed as contributing 15% of the country’s GDP.[243] Indeed, in producing a cost-benefit analysis in 1998, Lal concluded that the benefits of the tax haven industry in Vanuatu outweigh the costs.[244] Aspects of this analysis may still be applicable today. If tax havens or OFCs were to suffer, there would be follow-on effects for the economy and society of Pacific Island States. OFCs and tax havens require the availability of a range of local support services which create local benefits in the form of employment in both the tax haven industry and in other sectors of the community, transfer of skill to the local population and tourism, in addition to government revenue.[245] These benefits may be reduced or lost depending on the success of the offshore financial sector.
Concern about the potential financial impact of these measures outweighs the uncertain success of their implementation. The implementation of these regulations might not succeed in combating money laundering in the manner envisaged for a number of reasons. For example, studies have shown that there is a significant gap between regulation and implementation in a number of States.[246] A factor further mitigating the effects of such measures is that the use of current technology makes it difficult to sufficiently trace funds. Measures such as mutual assistance therefore only become relevant to individual financial institutions once the money trail has led to a specific place.[247] A further complication is that Pacific Island States may not have the capacity for adequate supervision of the services that are within their territory, despite the introduction of regulations.
In order for Pacific Island States to implement the provisions of the Convention,[248] they would require capacity building both in the form of technical and financial assistance. Indeed, this was the position advocated by the Group of 77 and China during the negotiations of the UN Convention.[249] Unlike other international conventions such as the OAS and OECD Conventions, the UN Convention addresses the issue of technical assistance, which may mitigate the costs to Pacific Island States of adopting the UN Convention.
The needs of developing States are specifically recognised as a matter of mutual concern,[250] and all parties are required to make ‘concrete efforts’ to aid these States with respect to financial assistance,[251] technical assistance,[252] the provision of training programmes and equipment,[253] as well as enhancing cooperation and developing their capacity.[254] While these provisions create legal obligations, these provisions are loosely worded, making it difficult to ascertain the extent of an individual State’s obligations. For example, the Convention purports to establish a specific funding mechanism to which States should ‘endeavour to make adequate and regular voluntary contributions’.[255] This obligation is fulfilled by the attempts of States, not the actual contributions. However, discussions at the first Conference of States Parties may elaborate upon the intended implementation of these provisions.[256]
While there are currently no specific requirements or enforcement mechanisms, the provisions for technical assistance rely upon other factors for their success. For example, the recognition of the needs of developing States alludes to the moral obligation to assist less developed States. Furthermore, the UN Convention creates an impetus to cooperate in this respect as a feasible means to combat corruption as a transnational phenomenon.[257] For example, as corruption in developing States may impact upon developed States, as is the case of money laundering, it may be in the interests of developed States to ensure the compliance of developing States. Therefore, despite the voluntary nature of financial contributions[258] for the funding mechanism, it is likely that such contributions will be forthcoming. This is especially true in the current international climate of the war against terrorism (as discussed earlier) and as a result of the international political support for anti-corruption instruments. The UN Convention also raises the prospect that part of the contributions to assistance funds be derived as a percentage of money or proceeds of crime that are confiscated under the Convention.[259]
Assistance under the UN Convention may occur through a variety of means, as States parties should consider ‘affording one another the widest measure of technical assistance’.[260] The Convention also states that such assistance should be (to the extent possible) in addition to existing aid arrangements.[261] This is significant given that the Pacific Island States currently receive aid from a variety of sources.[262]
Pacific Island States would benefit from the Convention’s provisions for technical assistance if they became States parties. While the exact nature of this assistance is not quantified, it is likely to mitigate a significant portion of the costs of implementing the Convention by providing financial assistance and building the capacity of these Pacific Island States. While this may act as an incentive for some States to adopt the Convention, it does not address the significant economic impact that Pacific Island States will face stemming from the effects of the Convention.
While money laundering may be a criminal act, Pacific Island States must weigh up the serious nature and likely occurrence of this crime with the economic and social costs. In such an analysis, it would not be beneficial to Pacific Island States to implement the money laundering provisions contained within the UN Convention. While financial and technical assistance provisions may alleviate the costs of implementing the UN Convention, they would not compensate for the losses from the effects of the Convention. While greater regulation may also have benefits, these are likely to occur only in the long term and do not substantiate the dramatic short term effects that would be felt by Pacific Island States.
While some preventative measures under the UN Convention are concerned with building and/or reinforcing measures such as international cooperation, information exchange and extradition, measures in the UN Convention also address matters of governance within States.[263] The basis of these normative provisions is to ensure appropriate systems and checks that will deter corruption or provide a detection system.
This section looks at the provisions in the UN Convention, which share the same guiding principles that have been identified in regional initiatives, albeit in a more specific form. These measures conform to the trend of ‘good governance’ in current international aid parlance (although the term ‘good governance’ is not actually used within the UN Convention). This term has been used by international financial and development institutions to apply measures that seek to address shortcomings within the governance of a State. While such a term may be ‘value-laden’,[264] it has become ‘largely equated with democratic practices, including transparency of policymaking and administration’.[265]
While there are similarities between regional measures and provisions under the UN Convention, this paper views the provisions of the UN Convention critically. The proposed measures are broad and comprehensive in nature, reflecting international standards rather than those focussed upon Pacific Island States. As these measures focus on strengthening of democracy, there may be conflict between democratic and traditional forms of governance. Furthermore, their top down approach may impact upon the reception of such measures in the Pacific Island States. This may be illustrated by the potential association of measure of good governance with aid conditionality.
The provisions of governance under the UN Convention are predominantly non-binding measures; provisions that States should endeavour to implement and others that States need only consider. While the former are of a persuasive nature,[266] there is a degree of discretion afforded to the member States in their application. The provisions are loosely worded, advocating ideals with recommended measures rather than detailed and quantifiable legal obligations.[267] This reflects that the UN Convention has a normative role in drawing States parties’ attention to issues of corruption. While incorporating flexibility may be necessary given the diverse States that this Convention should represent and the nature of these measures, this approach has also been criticised. The ICC considers that it detracts from the legal basis of the instrument and has stated that ‘[t]he mix of binding and non-binding provisions undercuts the objective of developing consistent international rules’.[268]
The provisions for good governance are extensive and cover a broad variety of acts, purporting to address issues such as transparency, accountability, integrity and the proper management of public affairs.[269] In order to illustrate the content of these provisions and the application of such principles, this section makes an artificial distinction in addressing provisions that should detect incidences of corruption, those that seek to address the acts of officials and those that reinforce structures that can address acts of corruption.
Creating mechanisms to detect incidences of corruption enable both prosecution and deterrence. This is particularly important in respect of financial matters as illustrated in the Convention with the requirement that States should endeavour to abide by public reporting provisions[270] and have transparent systems for the public procurement and management of public finances.[271] Such mechanisms are also enhanced through provision to promote the participation of society[272] and the encouraged collaboration between States and with regional and international organisations.[273]
Regulation of public officials is also an important aspect of the UN Convention as States parties should promote integrity, honesty and responsibility amongst its public officials.[274] The practical measures that are elaborated include comprehensive systems of employment,[275] the promotion of binding codes for public officials,[276] and measures to prevent conflicts of interest.[277]
Furthermore, States should endeavour to reinforce structures such as the judiciary[278] and the prosecution services.[279] This is an important aspect of governance as these structures will be responsible for the enforcement of acts of corruption. Moreover, the Convention requires the establishment of an anti-corruption body or bodies.[280] The importance of such an institution is reflected by the fact that this provision is the exception to the non-binding nature of the good governance provisions. Such bodies should implement policies encouraged within the Convention[281] and have an educational function.[282] This provision has been criticised by the ICC has being too bureaucratic.[283] Moreover, it is part of a wider criticism with respect to good governance provisions that the UN Convention should not intercede in matters of internal organisation.[284]
In relation to the Pacific, Findlay contends that corruption is a consequence of the under-representation of good governance.[285] Allegations of corruption within governance of the Pacific Island States are varied and serious in nature. One example is the broad contention that institutional protections such as the judiciary, government and private sector activities are under strain in the region.[286] Subsequently, issues of good governance have been addressed at a regional level for Pacific Island States.[287]
Examples of such initiatives include the Forum Principles of Good Leadership, the Anti-Corruption plan for Asia and the Pacific, the Biketawa Declaration and the Eight Principles of Accountability. To a lesser extent, the Okinawa initiative,[288] Nasonini Declaration and the Aikutaki Declaration also support good governance by reference to these principles within their provisions. While there are similarities between the goals of these regional instruments and the provisions in the UN Convention, the latter tend to be more specific than the overall principles and goals stated in these regional instruments. This reflects that within the Pacific Islands Forum, States have a policy of non-interference in the domestic affairs of other States, as emphasised in the Biketawa Declaration. As Noel Levi, the Secretary-General of the Pacific Islands Forum, has stated: ‘[a]t the political level, questions of governance remain sensitive and have consequently been left largely to the domestic or national level to deal with the nuts and bolts issues.’[289]
An illustration of this generality is the Forum Principles of Good Leadership that were formulated as a response to criticism of governance in the region. This document articulates nine general principles[290] that are considered fundamental to good leadership. While some of these principles recommend measures for States, these are general in nature such as ‘disclosure of fraud, corruption and mal-administration, of which the leader has become aware’ under the principle of respect for the law and system of government.[291] For the most part, these principles such as the ‘[r]espect for cultural values, customs and traditions and indigenous rights and observation of traditional protocols in the exercise of power’ are not articulated. This is partly due to the fact that these principles link good governance with good leadership, assuming a top down model. The onus is upon leaders and government officials rather than the system itself as a means of providing checks and balances, as would be advocated by organisations such as TI and the approach that has been adopted in the UN Convention.
The inclusion of good governance provisions, as evidenced by the UN Convention, tends to be based on western forms of governance. However, this paper recognises that there is an existing tension between western and traditional systems of governance in Pacific Island States that may make the application of ‘good governance’ provisions problematic. Many systems of governance were adopted by Pacific Island States at the time of independence and closely model the systems of their former ruling States, existing side-by-side with traditional systems of governance. Jowitt and Newton-Cain attribute many contemporary problems in the Pacific as arising from these ‘tensions between the legal, political and social systems introduced by various colonial powers and the legal, political and social systems of indigenous cultures’.[292]
While Pacific Island States have adopted western style reforms of their systems, there has been criticism that there ‘remains in fact a certain degree of both ambivalence and ignorance about these institutions, their basic functions and their objectives.’[293] For measures of good governance to succeed, the duality of governance within these nations needs to be considered. Specifically, measures to strengthen the democratic system of government must be seen as a legitimate expression of the people and relevant to their needs.[294] Indeed, there are often situations where there is conflict between traditional obligations and western expectations.[295] An illustration of these conflicts between western and traditional systems is the effectiveness of the office of the first Ombudsman of Vanuatu, Marie-Noelle Ferrieux Patterson. Despite the large number of reports lodged by the Ombudsman, few formal actions resulted from any of the recommendations.[296] While the western expectation would be that such actions would result in some form of sanction, this inaction has been attributed to the fact that ‘Pacific communities see their leaders as beyond the law, despite exposure or condemnation’.[297]
Not all reforms purport to reform the structure of governance, and some of the advocated reforms for good governance may benefit Pacific Island States. A persuasive contribution to the problem of corruption in the South Pacific includes the lack of experience or education that individuals have when assuming positions of public office.[298] Indeed, Hill states that in cases in Vanuatu, ‘naïveté and corruption are sometimes difficult to distinguish’.[2] The UN Convention does address these requirements such as through training programmes and educations as well as the non-binding obligation for requirements for elected office.[2] However, the extent of technical assistance to allow Pacific Island States to access such programmes is still unclear.
Attempts to harmonise legislation across jurisdictions may be viewed by Pacific Island States as the imposition of western values. Indeed, it is stated that ‘international anti-corruption movements risk “the dangers of intrusiveness, paternalism, and imperialism”’.[300] After all, Pacific Island States are developing States and are reliant upon more economically developed States. Consequently, it is perceived that the agenda for Pacific Island States is not set from within the States but influenced from abroad. Indeed, good governance provisions to combat corruption may be seen in this light, as Hughes comments, ‘it could be questioned how high corruption would be on the agenda of South Pacific countries if the matter was simply left to these countries alone.’[301]
Developed States may be able to exert both influence and pressure upon Pacific Island States to undertake such initiatives as the UN Convention. One method of applying pressure on Pacific Island States is by developed States and international organisations placing conditions upon aid and developmental assistance. An example is that Australia, a major donor in the pacific region, has stated that the existence of good governance practices is a major element in aid decisions.[3] The World Bank and the Asian Development Bank, previously reluctant to get involved in the domestic politics of their members, now require them to adopt anti-corruption policies as a condition for loans. This is important given that Pacific Island States have the highest per capita foreign assistance in the world.[3] An example is that in 1996, foreign aid made up almost 50% of the Vanuatu’s budget.[3]
While good governance is attributed as an important aspect of modern development programmes,[3] the imposition of reform upon Pacific Island States arguably undermines its legitimacy. It has been stated that: [303]
Given the ambivalence towards political institutions that are perceived to be irrelevant impositions, it is hard to see how ‘imposed’ anti-corruption law reform agendas will achieve their desired effects through the Pacific.
This top-down approach is therefore contended as ineffective. Provisions in the UN Convention attempt to redress this criticism through a continued process of information gathering, analysis and sharing.[304] Such results could target issues of corruption in the region more specifically and differentiate such measures from generic reform. Nevertheless, results from such data may take a long time to process, reducing how effectively the findings can be used to combat corruption.
Aid conditionality is not necessarily constructive.[305] However, neither is it specific to the Pacific Region and it is an issue that may be experienced by developing States internationally. As Levi has stated: [306]
One of the fundamental essence of governance is that there must be equal participation in the decision making progress. There surely is a need for aid donors to take note of recipient country’s preferences. How much participation do recipient countries have in project designs and appraisal and is it ethical for donors to place unreasonable conditionality on the promise of increased aid? These are some of the questions that symposium of governance ought to be asking.
Indeed, aid conditionality is criticised as an imposition, rather than a process of consultation.[307] However, it is an issue that has yet to be resolved and may occur in relation to the UN Convention.
At the conference for the signing of the UN Convention, International Organisations ‘such as the World Bank and the IMF were present at the convention and made very forceful statements to the effect that any country, which was genuinely committed to the fight against corruption, should sign it.’[308] However, such political pressure should not detract from the practical and potentially detrimental impact that these provisions may have upon States. Indeed, this is the case for Pacific Island States.
Under international instruments such as the OECD Convention, Pacific Island States have already been affected by the extra-territorial reach of international anti-corruption measures, despite their status as non-signatories. The UN Convention is critically examined, as the extra-territorial effect of such provisions is likely to continue under its provisions. This is exemplified by the application of bribery provisions similar to that of the OECD Convention and the expansion of the sources of jurisdiction that may be claimed under the Convention. In such situations, this paper has raised the issue of whether cultural practices would be excluded from the definition of bribery proposed by the UN Convention, given that the Convention is silent on this matter. While the grease/facilitation exception may exclude such acts, its application is uncertain under the Convention. Furthermore, the use of the defence of legality in the host State may also be problematic in differentiating acts of bribery from cultural practices. The limitations of such an approach is that cultural practices must be established under written or case law and are subject to the interpretation of foreign courts. Indeed, the undesirability of the latter is highlighted through the inclusion of the case study of mweaka. It is therefore unclear whether there is a place for cultural diversity under the UN Convention.
In adopting a slightly different approach, this paper also addressed provisions regarding money laundering, which is a highly relevant issue within the region. The paper argued that a realist approach should be applied by Pacific Island States when deciding to adopt the UN Convention. In balancing the national interests with international concerns, such provisions should not be adopted given the significant economic impact that the effect of these provisions would have upon these developing States. It is the abuse, not the legitimate use, of the offshore financial sector that facilitates such criminal acts. Therefore, the implementation of the measures under the Convention may adversely and disproportionately affect Pacific Island States if they adopt the UN Convention. They would mitigate the competitiveness of the OFCs, which would in turn impact upon both the society and economies of Pacific Island States.
The UN Convention is also criticised with respect to the top down model of reform that is purported by the inclusion of provisions of good governance. Such measures may be ineffective given the western nature of such reforms and the tension between western and traditional forms of governance. Such reforms need to be made more relevant to the needs of Pacific Island States. Furthermore, these measures may also attract resistance if they are perceived to be imposed upon the societies, as may occur with respect to aid conditionality.
This paper has illustrated that the UN Convention may have undesirable cultural, economic and political effects upon Pacific Island States. Therefore, Pacific Island States should refrain from adopting this Convention until its provisions reflect the needs of the region.
[*] LLB (hons) BA, Solicitor, Chapman Tripp, Wellington, New Zealand.
[1] United Nations Convention Against Corruption (2003) (“UN Convention”).
[2] A High-level Political Signing Conference for the United Nations Convention against Corruption was held in Merida, Mexico on 9 November 2003.
[3] For example, at the sixth session, 128 states were present, but Tuvalu was the only Pacific Island State present. “Report of the Ad Hoc Committee for the Negotiation of a Convention against Corruption on its sixth session, held in Vienna from 21 July to 8 August 2003” (Seventh Session, Vienna, 29 September – 1 October 2003), Document number A/AC.261/22, annex 1. However, the interests of some Pacific Island States could be indirectly represented through their inclusion in the Group of 77 and China.
[4] Heba Shams, ‘The Fight Against Extraterritorial Corruption and the Use of Money Laundering Control’ (2001) 7 NAFTA: Law & Business Review of the Americas 85. Larmour also adopts this view. He states that corruption ‘carries connotations of decline, decay and falling away from the high ideals of the past’. In addition, he believes that for Pacific Island States, it has religious overtones given the strongly Christian nature of these states: Larmour P, ‘Corruption and Governance in the South Pacific’, State, Society and Governance in Melanesia Project (Discussion Paper, Australian National University, 1998) <http://rspas.anu.edu.au/ melanesia/Larmour.html> (at 14 December) (“Corruption and Governance”).
[5] ‘Proposals and contributions received from Governments – Result of the work undertaken by an informal open-ended working group coordinated by Pakistan on a note for the traveaux préparatoires regarding the definition of the term “corruption”’, Ad Hoc Committee for the Negotiation of a Convention against Corruption, (Sixth Session, 21 July – 8 August 2003), Document number A/AC.261/l.248.
[6] Despite the fact that this may create different conceptions of corruption where provisions pertain to acts in one convention that are not mentioned in another.
[7] As will be discussed later in the paper.
[8] Duane Windsor and Kathleen A Getz, ‘Multilateral Cooperation to Combat Corruption: Normative Regimes Despite Mixed Motives and Diverse Values’ (2000) 33 Cornell International Law Journal 731, 771.
[9] Steven R Salbu, ‘Transnational Bribery: The Big Questions’ (2001) 21 Northwestern Journal of International Law & Business 435, 438 (“Transnational Bribery”).
[10] It is also important to note that African Unity Convention on Preventing and Combating Corruption was adopted in 2003. It is still in its early stages, and will not be considered in detail in this paper. Out of 53 States of African Unity, only 21 states have signed the Convention, and none have ratified it, as of February 2004. African Union Website <http://www.africa-union.org> (at 19 January 2004).
[11] Alejandro Posadas, ‘Combating Corruption Under International Law’ (2000) 10 Duke Journal of Comparative & International Law 345, 348.
[12] Which has subsequently been amended twice. One in 1988 as part of an effort to strengthen American Businesses abroad and again in 1998 to adopt the necessary changes required by the OECD Convention.
12 US and foreign companies regulated by the SEC.
[13] All entities and businesses doing business in the US and not regulated by the SEC.
[14] Included in the 1998 amendments to cover any other acts occurring in US jurisdiction.
[15] Posadas, above n 11, 362.
[16] Ibid.
[17] It only required the ratification of two signatories to enter into force.
[18] The provisions regarding transnational bribery are included in OAS Convention, article 8.
[19] Article 7, Inter-American Convention Against Corruption, (29 March 1996), 35 ILM 724, (“OAS Convention”).
[20] OAS Convention, above n 20, art 13.
[21] OAS Convention, above n 20, art 14.
[22] OAS Convention, above n 20, art 2.
[23] Posadas, above n 11, 384.
[24] OAS Convention, above n 20, art 3.
[25] OAS Convention, above n 20, art 3(9).
[26] OAS Convention, above n 20, art 6(1)(a).
[27] OAS Convention, above n 20, art 6(1)(b).
[28] OAS Convention, above n 20, art 6(1)(d).
[29] OAS Convention, above n 20, art 6(1)(e).
[30] OAS Convention, above n 20, art 6(2).
[31] OAS Convention, above n 20, arts 8, 9 and 11.
[3]3 OAS Convention, above n 20, art 11(3).
32 OAS Convention, above n 20, art 5(4) does not preclude other grounds of jurisdiction established by the state law of a party.
[33] OAS Convention, above n 20, art 5(1).
[34] OAS Convention, above n 20, art 5(2).
[35] OAS Convention, above n 20, art 5(3).
[36] Posadas, above n 11, 388. Posadas argues that grease payments would fall under the definition of bribery under the OAS Convention.
[37] Barbara Crutchfield George and Kathleen A Lacey, ‘A Coalition of Industrialized Nations, Developing Nations, Multilateral Development Banks, and Non-Governmental Organizations: A Pivotal Complement to Current Anti-Corruption Initiatives’ (2000) 33 Cornell International Law Journal 547, 565.
[38] OAS Convention, above n 20, art 24.
[39] Joongi Kim and Jong Burn Kim, ‘Cultural Differences in the Crusade Against International Bribery: Rice-cake Expenses in Korea and the Foreign Corrupt Practices Act’ (1997) 6 Pacific Rim Law & Policy Journal 549, 554.
[40] Members of the OAS are, as of 21 December 2004: Argentina, Antigua & Barbuda, Bahamas (Commonwealth), Belize, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, St. Kitts & Nevis, St. Lucia, St. Vincent & Grenadines, Suriname, Trinidad and Tobago, United States, Uruguay and Venezuela.
[41] These were the OECD Recommendation on Bribery in International Business Transactions 1994, the Recommendation on the Tax Deductibility of Bribes of Foreign Officials 1996 and the Revised recommendation on Bribery in International Business Transactions 1997. Following the Convention, the OECD also published the Recommendation on Improving Ethical Conduct in the Public Service 1998.
[42] Commentaries on the Convention on Combating Bribery of Officials in International Business Transactions, adopted by the OECD Negotiating Conference (21 November 1997), Article 1(3) (“OECD Commentaries”).
[43] Monitoring and follow-up completed by OECD Working Group on Bribery in International Business Transactions as settled by OECD Convention, article 12. The working group has established a two-phase process for the implementation. Phase one (currently the focus) evaluates the legal texts of member states to implement the Convention. Phase two broadens the group’s focus and assesses the application of the Convention. Experts from a variety of international organisations contribute to the working group, and a range of civil society and private enterprise organisations are also consulted.
[44] Lisa Miller, ‘No More ‘This For That’? The Effect of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions’ (2000) 8 Cardozo Journal of International and Comparative Law 139, 142.
[45] Posadas, above n 11, 379.
[46] OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, (1997) 37 I.L.M. 1., art 1(1) (“OECD Convention”).
[47] OECD Convention, above n 48, art 1(2).
[48] OECD Convention, above n 48, art 8(1).
[49] Sanctions for bribery are articulated in OECD Convention, above n 48, art 3. Under art 3(1) criminal penalties are specified and further guidance is given that the range of penalties is to be comparable to domestic bribery laws. Where legal persons are not subject to criminal penalties, art 3(2) establishes that a similar level of non-criminal penalties be applied. In both cases, art 3(4) allows for the further imposition of civil and administrative sanctions. With regards to accounting practices, art 8(2) describes that civil, administrative or criminal penalties may be applicable.
[50] OECD Convention, above n 48, art 4(1).
[51] OECD Convention, above n 48, art 4(2).
[52] OECD Convention, above n 48, art 4(4).
[53] OECD Convention, above n 48, art 9, this assistance is to be ‘to the fullest extent possible’ (art 9(1)) and there is no exception for dual criminality (which is to be established by the Convention – art 9(2)) or bank secrecy (art 9(3)).
[54] OECD Convention, above n 48, art 10.
[55] OECD Convention, above n 48, art 5.
[56] ‘Report by the Committee on International Investment and Multinational Enterprises: Implementation of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and the 1997 Recommendation’, Directorate for Financial, Fiscal and Enterprise Affairs, (OECD Ministerial Council meeting, 15-16 May 2002), <http://www.oecd.org/dataoecd/52/59/2087917.pdf> (at 18 February 2004).
[57] Quote from George and Lacey, above n 39, 563 that footnoted the U.S. State Department Fact Sheet: OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Mar. 1, 2000), <http://www.state.gov/www/issues/
economic/fs_000301_oecd_ conv.html>.
[58] ‘Frequently Asked Questions’, OECD Anti-corruption Unit (last modified Jan. 18, 2001), <http://www.oecd.org/daf/nocorruption/faq.htm> (at 12 December 2003).
[59] The UN has also adopted corruption-related resolutions such as resolution 51/59 of 12 December 1996, which was an international code of conduct for public officials, intended to guide efforts against corruption.
[60] Resolution 55/61 of 4 December 2000 established an ad-hoc committee and requested the secretary-general to convene an intergovernmental open-ended expert group. Resolution 55/188 of 20 December 2000 requested the expert group to prepare draft terms of reference for the negotiation of the international instrument. Resolution 56/260 of 9 April 2002 deemed that the ad-hoc committee should negotiate the Convention.
[61] Resolution 56/260 of 9 April 2002, part 2.
[6]4 Resolution 56/260 of 9 April 2002, part 3.
62 UN Convention, above n 1, art 1.
[63] UN Convention, above n 1, art 3.
[64] And includes provisions in the Convention not only for harmonisation of criminal offences but also reinforcement of these principles, such as provisions for liability in art 26, against concealment in art 24 and obstruction of justice in art 25 and prosecution, adjudication and sanctions under art 30.
[65] Posadas, above n 11, 409.
[6]9 As noted in Nancy Boswell, ‘The Impact of International Law on Domestic Governance’ (2003) 97 American Society of International Law Proceedings 133, 133.
66 UN Convention, above n1, chapter II (preventative measures).
[67] UN Convention, above n 1, arts 5(1) and 5(2).
[68] UN Convention, above n 1, arts 5(3) and 5(4).
[69] UN Convention, above n 1, arts 6 and 36.
[70] UN Convention, above n 1, art 6(2) – the level of independence is to accommodate the fundamental principles of the state party’s domestic legal system. The body should be effective to do the job (including appropriate resources and staff) and be free of undue influence.
[71] UN Convention, above n 1, art 7(1).
[72] UN Convention, above n 1, art 9.
[73] UN Convention, above n 1, art 13.
[74] UN Convention, above n 1, art 12.
[75] UN Convention, above n 1, art 15.
[76] UN Convention, above n 1, art 16.
81 UN Convention, above n 1, art 1[7].
77 UN Convention, above n 1, art 18.
[78] UN Convention, above n 1, art 24.
[79] UN Convention, above n 1, art 19.
[80] UN Convention, above n 1, art 20.
[81] UN Convention, above n 1, arts 21 and 22 respectively.
[82] UN Convention, above n 1, art 14.
[83] UN Convention, above n 1, art 23.
[84] UN Convention, above n 1, arts 37 – 50.
[85] UN Convention, above n 1, arts 38, 39, 43, 51, 46 and 37 in conjunction with various provisions under ch 5.
[86] UN Convention, above n 1, ch 5 deals with the matter of asset recovery.
[87] UN Convention, above n 1, ch 6.
[88] UN Convention, above n 1, art 60(1).
[89] UN Convention, above n 1, art 62.
[90] And there is recognition of the plight of developing states.
[91] UN Convention, above n 1, art 62(2).
[92] UN Convention, above n 1, art 63(3).
[93] Fritz Heimann, ‘Presentation by the International Chamber of Commerce at the Signing Conference of the UN Convention Against Corruption’ (11 December 2003), <http://www.iccwbo.org> (at 3 February 2004).
[94] ‘Ashcroft Urges Global Corruption Fight’ The Guardian, 22 January 2004, <http://www.guardian.co.uk> (at 25 January 2004). ‘Twenty-eight months ago, all free nations were called to defend freedom from terrorism. Today we are called to defend our freedom from corruption,’ the attorney general said.
[95] UN Convention, above n 1, art 68(1).
[96] The preamble mentions the Criminal Law Convention on Corruption, adopted by the Committee of Ministers of the Council of Europe on 27 January 1999, and the Civil Law Convention on Corruption, adopted by the Committee of Ministers of the Council of Europe of Europe of 4 November 1999.
[97] The preamble mentions the Convention on the Fight against Corruption involving Officials of the European Council of the European Union on 26 May 1997.
[98] The preamble mentions the African Union Convention on Prevention and Combating Corruption, adopted by the Heads of State and Government of the African Union on 12 July 2003.
[99] The preamble mentions the OECD Convention, above n 44.
[100] The preamble mentions the OAS Convention, above n 20.
[101] George and Lacey, above n 39, 566.
[102] Bruce Zagaris and Shaila Lakhani Ohri, ‘The Emergence of an International Enforcement Regime in the Economic Development of the Americas’ (1999) 30 Law and Policy in International Business 53, 86.
[103] Commission on Anti-corruption, <http://www.iccwbo.org/home/extortion_bribery/
committee.asp> (at 3 February 2004).
[104] Although not advocating explicitly for the criminalisation of foreign bribery.
[105] Peter J Henning, ‘Public Corruption: A Comparative Analysis of International Corruption Conventions and United States Law’ (2001) 18 Arizona Journal of International
& Comparative Law 793, 793.
[106] Kim and Kim, above n 41, 557.
[107] UN Convention, above n 1, art 15(a).
[108] UN Convention, above n 1, art 16(1).
[109] The OECD Convention makes it an offence for ‘any person intentionally to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official, for that official or for a third party, in order that the official act or refrain from acting in relation to the performance of official duties, in order to obtain or retain business or other improper advantage in the conduct of international business’.
[110] UN Convention, above n 1, art 15(b).
[111] This is also a practical provision given that there may be issues of immunity that arise with respect to foreign public officials and officials of public international organisations.
[112] This idea is reflected in the US submission regarding article 19b. This submission emphasised that the article was not intended to be a weakening of the provision. ‘Proposals and contributions received from Governments - United States of America: Amendment to Article 19 bis’, Ad Hoc Committee for the Negotiation of a Convention against Corruption, (Sixth Session, Vienna, 21 July - 8 August 2003), Document number A/AC.261/L.249.
[113] Such a distinction is based on a matter of scale. Grand corruption tends to occur with higher officials and country leaders and/or involves significant amounts of money. Shams, above n 4, 85.
[11]9 Such a distinction is based on a matter of scale. On the other hand, petty corruption often involves lesser degrees of money and assets and officials of a lower level. It is an uncertain and non-legal distinction but one that is frequently used in discourse on the topic. Shams, above n 4, 85.
114 ‘Proposals and contributions received from Governments – United States of America: Amendment to Article 19 bis’, above n 116.
[115] Steven R Salbu, ‘The Foreign Corrupt Practices Act as a Threat to Global Harmony’ (1999) 20 Michigan Journal of International Law 419, 429 (“Foreign Corrupt Practices Act”).
[116] UN Convention, above n 1, art 28 – Knowledge, intent or purpose required as an element of an offence established in accordance with this convention may be inferred from objective factual circumstances.
[117] As will be discussed later.
[118] UN Convention, above n 1, art 27.
[119] OECD Commentaries, above n 44, art 9.
[120] OECD Convention, above n 48, art 1(1).
[121] OECD Commentaries, above n 44.
[122] Prevenslik-Takeda L, ‘Report on Status of UN Convention against Corruption – Review of Adopted Texts pursuant to 6th Session, 21st July – 8th August, Vienna’ (September 2003), <http://www.transparency.org/building_coalitions/intern.institutions/un/dnld/6th_and_7th.session.report.pdf> (at 17 January 2004).
[123] For example Miller, above n 46, 142.
[124] Vienna Convention on the Law of Treaties (1969) 8 International Legal Materials 679, art 31(3)(b).
[125] ‘Facilitation Payments: Whether considered custom or bribery, they put companies in a precarious position’ (2003) ERC Fellows Program, Ethics Resource Centre, <http://www.ethics.org> (at January 8 2004) (“Facilitation Payments”).
[126] Ibid.
[127] Ibid.
[128] ‘Transnational Bribery’, above n 9, 456.
[129] This topic is extensive given the sheer complexity and diversity of culture in Pacific Island States. Many cultural practices would suit separate evaluation. However, it is beyond the scope of the current paper to examine practices in detail.
[130] ‘Transnational Bribery’, above n 9, 456.
[131] While the department or ministry is expected to adhere to these instructions, there are no follow-up procedures, no clear instructions on the handling of traditional gifts and any disposal of gifts is left up to the discretion of these departments or ministries. ‘Fiji Questionnaire’ Transparency International, National Integrity Systems (2001), <http://www.transparency.org/ activities/nat_integ_systems/dnld/fiji.q.pdf> (at 19 December 2003) (“Fiji Questionnaire”).
[13]8 ‘National Integrity Systems Country Study Report – Fiji 2001’ Transparency International, National Integrity Systems (2001), <http://www.transparency.org/activities/
nat_integ_systems/dnld/fiji.pdf> (at 19 December 2003) (“Country Study Report – Fiji 2001”).
132 That enters into force on 1 January 2005.
[133] ‘Azerbaijani Parliament Adopts Anti-Corruption Law’, Baku Today, 15 January 2000, <http://www.bakutoday.net> (at 16 January 2004).
[134] ‘Program Eight Transcript – Corruption and the Rule of Law’, Time to Talk <http://abc.net.au> (at 9 December 2003).
[135] OECD Commentaries, above n 44, art 8.
[136] OECD Commentaries, above n 44, art 7.
[137] Christopher F Corr and Judd Lawler, ‘Damned If You Do, Damned If You Don’t? The OECD Convention and the Globalization of Anti-Bribery Measures’ (1999) 32 Vanderbilt Journal of Transnational Law 1249, 1262.
[138] “Foreign Corrupt Practices Act” 425.
[139] These cases do not pertain to the exact situations envisaged by obligations under the UN Convention, instead dealing with allegations of vote buying.
[140] Teiwaka v Tenieu, [1991] HCCC 25, 91 (Muhammad CJ).
[141] Ibid.
[142] Teannaki v Tito (Judgment) [1996] HCCC 30, 94 (Lussick CJ).
[143] “Corruption and Governance”, above n 4.
[144] Lussick CJ considered that Teiwaki v Tenieu was a bribe and the defence should not apply. Lussick CJ did not follow the reasoning of Muhammad CJ, stating that custom must still be followed regardless of intervening electoral events. Rather, he considered it a bribe because the tobacco was given outside the maneaba when the defendant was uninvited.
[145] It is expected when someone is invited to the maneaba by people of the village, but is considered optional for a visitor in other circumstances. There is no penalty if a gift is not given, although in the former case the individual may be considered a ‘poor man’. In the latter case, not giving a gift would not even be a matter of discussion.
[146] Teannaki v Tito, above n 148.
[1]54 ‘High Court Clears President Tong – Kiribati leader can get on with running the country’, Pacific Magazine and Islands Business, November 2003, <http://www.pacificislands.cc> (last accessed 18 January 2004).
147 Teiwaka v Tenieu, above n 146.
[148] ‘WHO Announces Regional Health Awards’, World Health Organisation, (30 May 2002), <http://www.wpro.who.int> (at 18 January 2004).
[149] For example, this view is expressed in George and Lacey, above n 39, 547.
[150] “Transnational Bribery”, above n 9, 453.
[151] Ibid, 450.
[152] Gantz, D A, ‘Globalizing Sanctions Against Foreign Bribery: The Emergence of a New International Legal Consensus’ (1998) 18 Northwestern Journal of International Law & Business 457, 462.
[153] George and Lacey, above n 39, 563.
[154] For example, Hughes defines corruption not just as illegitimate acts but acts that are immoral. Hughes, R, ‘Corruption’ in Jowitt and Cain (eds), Passage of Change – Law, Society and Governance in the Pacific (2003) 35, 36 (“Corruption”).
[155] Posadas, above n 11, 357.
[156] George and Lacey, above n 39, 555.
[157] Ibid, 591.
[158] Ibid.
[159] Kim and Kim, above n 41, 561.
[160] Article 42(1)(a) and in other cases where a state exercises jurisdiction, such as where the offence is committed on board a ship in certain circumstances [art 42(1)(b)].
[161] Article 42(2)(b).
[162] It is widely accepted as it represents the exercise of a state’s sovereignty over its own territory. It also has the practical benefits such as the convenience of the forum and interest of the state of affairs within the territory. Ian Brownlie, Principles of Public International Law (6th ed, 2003), 299.
[163] Countries with a continental European model legal system tend to claim such jurisdiction whereas common law countries tend to restrict such jurisdiction over their nationals abroad to serious offences. Malcolm N Shaw, International Law (4th ed, Cambridge University Press, Cambridge, 1997) 466.
[164] UN Convention, above n 1, art 42(2)(a).
[165] UN Convention, above n 1, art 42(2)(d).
[166] Brownlie, above n 169, 302.
[167] Dixon and McCorquodale, Cases and Materials on International Law, (3rd ed, 2000), 295.
[168] Namely, an act in association with or conspiracy to commit, attempts to commit and aiding, abetting, facilitating and counselling.
[169] UN Convention, above n 1, art 42(2)(c).
[170] Under the objective territorial principle, a state may claim jurisdiction ‘over all activities that are completed within its territory, even though some element constituting the crime or civil wrong took place elsewhere.’ Dixon and McCorquodale, above n 174, 289.
[171] The UN Convention substantively deals with issues of money laundering as an aspect of corruption. While the OECD Convention mentions money laundering in article 7, this is to make bribery of foreign public officials a predicate offence for money laundering if a state party has bribery as a predicate offence. This is to ensure equal treatment for acts of bribery. Furthermore, the OAS Convention does not explicitly address money laundering. However, it is possible that it may constitute an act of corruption under article 6(2), where any two parties may deem an act to be corruption by mutual agreement.
[1]80 George A Walker, ‘Latin American Money Laundering Options and the European Model’ (1996) 2 NAFTA: Law & Business Review of the Americas 169, 174.
172 Jack Blum, Michael Levi, Thomas Naylor, and Phil Williams, Financial Havens, Bank Secrecy and Money Laundering (1998), 5 (“Financial Havens”).
[173] Financial Havens, above n 180, iv.
[174] This third means is considered by some to not truly be laundered. Financial Havens, above n 180, 5. However, as this section will not focus on this means it is beyond the scope of this paper to debate the definition of the term.
[175] A term used by Alexis Johnson as stated in Phil Williams and Gregory Baudin-O’Hayon, ‘Global Governance, Transnational Organized Crime and Money Laundering’ in Held and McGrew (eds), Governing Globalization – Power, Authority and Global Governance (2002) 127, 132.
[176] Financial Havens, above n 180, 19.
[177] Indeed, offshore centres have been associated with issues of national security through the association of money laundering with the funding of terrorist organisations. Anthony B Van Fossen, ‘Money Laundering, Global Financial Instability and Tax Havens in the Pacific Islands’ (2003) 15(2) The Contemporary Pacific 237, 264.
[178] As laundering assumes the use of illicitly obtained funds whereas terrorists are often financed by legally obtained money (although obviously not clearly sourced), Williams and Baudin-O’Hayon, above n 183, 138.
[179] Ibid.
[180] Mareva Betham Annandale, ‘Offshore Banking. A Legal Fabrication for Money Laundering?: A Critique of the Legal Framework of the Western Samoa Off-Shore Finance Center’ in Journal of South Pacific Law (1998) Vol 2, Working Paper 5, <http://www.vanuatu.usp.ac.fj/journal_splaw/working_papers/Annandale2.htm> (at 10 January 2004) (“Offshore Banking”).
[181] Ibid.
[182] Tax havens are not necessarily OFCs although all OFCs are tax havens.
[183] Salinas, J G, ‘The OECD Tax Competition Initiative: A Critique of its Merits in the Global Market Place’ (2003) 25 Houston Journal of International Law 531.
[184] Van Fossen , above n 185, 268.
[1]94 Wallace-Bruce, N L, ‘Offshore Financial Centres and Global Finance in the New Millennium’ in Sampford, Condlin, Palmer and Round (eds), Asia Pacific Governance – from crisis to reform (2002) 91, 92.
185 Financial Havens, above n 180, 22.
[186] Wallace-Bruce, above n 193, 97
[187] Financial Havens, above n 180, 24.
[188] The nature of these secrecy laws may vary in nature and stringency depending upon the form of domestic regulation.
[189] Financial Havens, above n 180, 16.
[190] UN Convention, above n 1, art 23. The Convention also obligates States to take other measures if necessary to establish these acts as criminal offences.
[191] UN Convention, above n 1, art 23(2)(a). A minimum range of predicate offences is required by the UN Convention – art 23(2)(b) and it is not necessary that the crime be committed within the state’s jurisdiction unless the crime is both a crime under the jurisdiction of the state where the crime is committed and if it would be a crime if it was committed in the state.
[192] UN Convention, above n 1, art 23(1)(a)(i).
[193] UN Convention, above n 1, art 23(1)(a)(ii).
[194] UN Convention, above n 1, art 23(1)(b)(i), this is subject to the basic concepts of a State’s legal system.
[195] UN Convention, above n 1, art 23(1)(b)(ii).
[196] UN Convention, above n 1, art 14(1)(a), these provisions may also apply to other bodies (in addition to banks and non-bank financial institutions) that are particularly susceptible to money laundering. In establishing this regime, States are encouraged to use as a guideline relevant initiatives of regional, interregional and multilateral organisations, UN Convention, art 14(4).
[197] UN Convention, above n 1, art 14(1)(a).
[198] UN Convention, above n 1, art 14(1)(a).
[199] UN Convention, above n 1, art 40.
[200] UN Convention, above n 1, art 46(21)(c) requests for legal assistance can be denied if the authorities of the requested state party would be prohibited by its domestic law from carrying out the action requested with regard to any similar offence, had it been subject to investigation, prosecution or judicial proceedings.
[201] UN Convention, above n 1, arts 46(8) and 46(22). The provision that bank secrecy is not a ground for denying mutual assistance is considered a standard provision in modern anti-money laundering and anti-corruption instruments. Shams, above n 4, 89.
[202] UN Convention, above n 1, art 46(19).
[203] UN Convention, above n 1, art 12(2)(c) - improving standards in the private sector. States should also consider requiring internal auditing controls for private enterprises under art 12(2)(f).
[204] Renee D S Lal, ‘The Tax Haven Industry of Vanuatu – The Costs and the Benefits of the Industry’ (1998) 2 Journal of South Pacific Law, Working Paper 6, <http://www.vanuatu.usp.ac.fj/journal_splaw/Working_Papers/Lal2.htm> (at 9 December 2003) (“Tax Haven Industry”).
[205] UN Convention, above n 1, art 52(4).
[206] Financial Havens, above n 180, 65.
[207] Ibid, 10.
[208] As will be described later on in this paper.
[209] UN Convention, above n 1, art 52(4).
[210] UN Convention, above n 1, art 52(1).
[211] ‘US to Return $20 Million to Peru’, Miami Herald.com 11 January 2004, <http://www.miami.com> (at 16 January 2004).
[212] UN Convention, above n 1, art 38.
[213] UN Convention, above n 1, art 39.
[214] UN Convention, above n 1, art 43.
[215] UN Convention, above n 1, art 14(1)(b).
[216] UN Convention, above n 1, art 14(1)(b).
[217] “Tax Haven Industry”, above n 213.
[218] This is particularly contentious with respect to Pacific Island States in distinguishing between tax evasion or avoidance and competitive taxation regimes.
[219] UN Convention, above n 1, art 46(1).
[220] This obligation may be relied upon for the purposes of obtaining relevant documents and records (art 46(3)(f)), and identifying or tracing proceeds of crime (art 46(3)(g)), and identifying, freezing and tracing proceeds of crime (art 46(3)(j)).
[221] For example, the ‘Declaration by the South Pacific Forum on Law Enforcement Cooperation’ (1992) <http://www.forumsec.org.fj/docs/Gen_Docs/dolec.htm> (last
accessed 9 November 2004), stated that: The Forum accepted the need to strengthen national and international legal provisions to enable the proceeds and instrumentalities of crime to be traced, frozen and seized, and acknowledged the need to regulate banking and other financial services to reduce the possible manipulation of these services to “launder” the proceeds of crime.’
[222] Levi, W N, ‘Governance in Pacific States: Re-assessing Roles and Remedies’, Pacific Islands Forum Secretariat, (30 September 2003), <http://www.forumsec.org.fj> (last accessed 9 November 2003).
[223] Ibid. These have included a range of instruments. Some soft law instruments include the Basle Committee’s statement of general principles 1988 and the FATF (Financial Action Task Force) Recommendations. International conventions include the UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances 1988, European Convention on Mutual Legal Assistance1990, Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime 1992, and most recently the UN Convention against Transnational crime (yet to enter into force).
[2]34 These accusations are not new and Van Fossen traces criticism of Nauru and Vanuatu as money laundering centres in the Australian and Pacific media in the mid-1980s. Van Fossen, above n 185, 240. However, the growing movement against money laundering has created international action that has had more negative effects on PICs.
224 Ibid, 244.
[225] The Bank of New York, the Republic Bank of New York, Deutshe Bank and Bankers Trust.
[226] Van Fossen, above n 185, 246.
[227] Ibid.
[228] Including those that they are not members of, such as the G7, which has created the FATF.
[229] Van Fossen, above 185, 238.
[230] Findlay, M, ‘The Pacific’, Transparency International, Global Corruption Report (2003), <http://www.globalcorruptionreport.org/download/gcr2003/12_Pacific_(Findlay).pdf> (at 21 December 2003), 116.
[231] Financial Havens, above, n 180, 29.
[232] The Financial Action Task Force has been involved in money laundering regulation as part of the movement against transnational crime. Parts of these initiatives have involved more transparency with regards to banks knowing the beneficial owner of the bank account through reporting systems. They also advocate establishment of financial intelligence units as well as measures to support international cooperation and information sharing aspects.
[233] Williams and Baudin-O’Hayon, above n 183, 132.
[234] Van Fossen, above n 185, 256.
[235] Financial Havens, above n 180, 9.
[236] Van Fossen, above n 185, 254.
[237] Quote in The World Bank, Enhancing the Role of Government in the Pacific Island Economies (1998), 5.
[238] Financial Havens, above n 180, 21.
[2]50 Ibid, 18.
239 Ibid.
[240] Competition is not only fierce with regards to OFCs in other regions but also in the Pacific Region itself. For example, in discussing the Western Samoan OFC, Annandale identifies the competition it has with tax havens in Vanuatu and the Cook Islands as well as the Tongan OFC. “Offshore Banking” above n 188.
[241] “Offshore Banking”, above n 188.
[242] Financial Havens, above n 180, 18.
[243] “Tax Haven Industry”, above n 213.
[244] Ibid.
[245] Ibid.
[246] Financial Havens, above n 180, 28.
[247] Ibid, 17.
[248] In the situation that implementation is in fact desirable (and this paper has highlighted some reasons why this may not be the case).
[249] The representative of Guatemala speaking on behalf of the Group of 77 and China stated that ‘technical assistance was essential for developing countries to implement the provisions of the convention’. ‘Report of the Ad Hoc Committee for the Negotiation of a Convention against Corruption on its sixth session, held in Vienna from 21 July to 8 August 2003’, above n 3.
[250] UN Convention, above n 1, art 60(6).
[251] UN Convention, above n 1, art 62(2)(b).
[252] UN Convention, above n 1, art 62(2)(c).
[253] UN Convention, above n 1, art 62(2)(d).
[254] UN Convention, above n 1, art 62(2)(a).
[255] UN Convention, above n 1, art 62(2)(c).
[256] UN Convention, above n 1, art 63(4)(a) – the Conference of State Parties is to agree upon activities, procedures, and methods to facilitate the technical assistance provisions including mobilisation of voluntary contributions.
[257] UN Convention, above n 1, art 62(1) commits parties to adopt measures ‘conducive to the optimal implementation of the Convention to the extent possible, through international cooperation’. This reinforces the ideas of the preamble that recognises that ‘corruption is no longer a local matter but a transnational phenomenon that affects all societies and economies, making international cooperation to prevent and control it essential’. The preamble also recognises that ‘the prevention and eradication of corruption is the responsibility of all States and that they must cooperate with one another… if their efforts in this area are to be effective’.
[258] UN Convention, above n 1, art 60(7) or art 62(2).
[259] UN Convention, above n 1, art 62(2)(c).
[260] UN Convention, above n 1, art 60(2).
[261] UN Convention, above n 1, art 62(2)(c).
[262] As will be discussed later in the paper, Pacific Island States rely heavily on aid. This aid is both bi-lateral and multi-lateral. It is beyond the scope of this paper to comprehensively describe the nature of this aid or its many sources.
[263] Hassell defines governance as ‘the traditions, institutions, mechanisms and processes that determine how power is exercise. The concept of governance extends beyond formal government institutions and includes a consideration of the role of citizens and non-governmental organisations (often referred to as civil society) and the institutions and processes by which civil society participates on governance within a society.’ Graham Hassall, ‘Governance, Legitimacy and the Rule of Law in the South Pacific’ in Jowitt and Cain (eds), Passage of Change – Law, Society and Governance in the Pacific (2003) 51.
[264] Francis N Botchway, ‘Good Governance: the Old, the New, the Principle, and the Elements’ (2001) 13 Florida Journal of International Law 159, 162.
[265] ‘I Futa Helu, ‘Tradition and Good Governance’, State, Society and Governance in Melanesia Project (Discussion Paper No. 97/3, Australian National University, 1997) <http://rspas.anu.edu.au/melanesia/Helu97_3.html> (last accessed 19 January 2004).
[266] Indeed, these are considered by Prevenslik-Takeda to be mandatory. Prevenslik-Takeda, above n 127.
[267] They are also subject to implementation ‘in accordance with the fundamental principles of the legal system’.
[268] Heimann, above n 97.
[269] And it is beyond the scope of the current paper to illustrate all these measures. For the purpose of the current discussion, only those matters that states should endeavour to implement are addressed rather than those that states should consider implementing. This is to provide a more favourable account of these measures. It may be prejudicial to include measures that states need only consider, as these may be controversial, such as regulating funding for candidates.
[270] UN Convention, above n 1, art 10.
[271] UN Convention, above n 1, art 9 – these include art 9(2) that suggests promotion of transparency and accountability using the measures of (a) procedures for adoption of the national budget, (b) timely reporting on revenue and expenditure, (c) a system of accounting and auditing standards and related oversight, (d) effective and efficient systems of risk management and internal control and (e) corrective action.
[272] UN Convention, above n 1, art 13.
[273] UN Convention, above n 1, art 5(4).
[274] UN Convention, above n 1, art 8(1).
[275] UN Convention, above n 1, art 7 – for non-elected public officials. These systems are to be (a) Based on principles, (b) adequate procedures, (c) equitable pay and (d) education and training programmes. Also the nature of employment is very broad – it includes recruiting, hiring, retaining, promoting and retiring civil servants and other non-elected public officials.
[276] UN Convention, above n 1, art 8.
[277] UN Convention, above n 1, art 7(4).
[278] UN Convention, above n 1, art 11(1).
[279] UN Convention, above n 1, art 11(2).
[280] UN Convention, above n 1, art 6 (preventative anti-corruption body or bodies) – as discussed earlier in the background section in relation to the fact that state parties are also obligated to ensure the necessary independence, to carry out functions effectively, necessary material resources and specialised staff and training (art 6(2)).
[281] UN Convention, above n 1, art 5.
[282] UN Convention, above n 1, art 6(b).
[283] ‘Comments from ICC’s Commission on Anti-Corruption on the draft UN Convention against Corruption’, Commission on Anti-Corruption, (9 January 2003), <http://www.iccwbo.org/home/statements_rules/statements/2003/un_convention_against_corruption.asp> (at 3 February 2004) (“Commission on Anti-Corruption”).
[284] “Commission on Anti-Corruption”, above n 294.
[285] Findlay, above n 240, 115.
[286] Ibid, 116.
[287] There are undoubtedly also measures that may be taken at the domestic level. However, given that analysis is based upon Pacific Island States generally, it is more appropriate to look at regional initiatives rather than get too in depth with regards to individual States and their comparative measures.
[288] The Okinawa Initiative, a regional development strategy and joint action plan refers to the importance of good governance principles such as those contained in the Forum’s eight principles of accountability as well as promoting the inclusion of civil society. ‘The Okinawa Initiative: Regional Development Strategy for a More Prosperous and Safer Pacific’, The Pacific Leaders Summit between Japan and Members of the Pacific Islands Forum, (Okinawa, May 16-17 2003).
[289] Levi, above n 231.
[290] These principles are: respect for the law and system of government, respect for cultural values, customs and traditions, respect for freedom of religion, respect for people on whose behalf leaders exercise power, respect for members of the public, economy and efficiency, diligence, national peace and security and respect for office. Forum Principles of Good Leadership, Annex 2, Thirty-Fourth Pacific Islands Forum Communiqué, 2003.
[291] Forum Principles of Good Leadership, ibid, principle 1, (ii)(d).
[292] Tess Newton Cain and Anita Jowitt, ‘Introduction’ in Jowitt and Cain (eds), Passage of Change – Law, Society and Governance in the Pacific (2003) 1, 1.
[293] “Corruption”, above n 161, 45.
[294] Levi, above n 231.
[295] ‘Country Study Report – Fiji 2001’, above n 137, 10.
[296] Edward R Hill, ‘The Vanuatu Ombudsman’ in Anita Jowitt and Tess Newton Cain (eds), Passage of Change – Law, Society and Governance in the Pacific (2003) 71, 84.
[297] Findlay, above n 240, 116.
[298] “Corruption”, above n 161, 45-46.
311 Hill, above n 307, 83.
299 UN Convention, above n 1, art 7(2).
[300] Robert D Tronnes, ‘Ensuring Uniformity in the Implementation of the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions’ (2000) 33 George Washington International Law Review 97, 103.
[301] “Corruption”, above n 161, 47.
[3]15 Callick, R, ‘East Asia and the Pacific’, Transparency International, Global Corruption Report (2001), <http://gcr.netscript.kunde.sserv.de/download/gcr2001/rr_east_asia_
pacific.pdf> (at 21 December 2003), 17.
316 ‘Pacific Island Leaders Criticise Globalisation’, Pacific Islands Broadcasting Association News Service, 1 February 2000.
317 Hill, above n 307, 76.
302 Cain and Jowitt, above n 303, 34.
[303] “Corruption”, above n 161, 48.
[304] UN Convention, above n 1, art 61.
[305] Findlay, above n 240, 115.
[306] Levi, above n 231.
[307] ‘Program Six Transcript – The Governance Agenda’, Time to Talk <http://abc.net.au> (at 9 December 2003).
[308] ‘Government Dodges UN Anti-Corruption Convention’, Ghanaian Chronicle, 8 January 2004, <http://allafrica.com> (at 9 January 2004).
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