Does the prohibition on facilitating payments correlate with higher levels of corruption? A question revisited
Tuesday, August 25, 2015 at 9:18AM
Andy Spalding in Bribe Payers Index, Corruption Perceptions Index, Dust Knight, Facilitating Payments, OECD Convention on Combating Bribery of Foreign Public Officials, Transparency International

In a prior post on the FCPA Blog, we observed a pattern that surprised ourselves and many others: signatories to the OECD Convention that allow facilitating payments have a significantly better average ranking on the Corruption Perceptions Index than those countries that prohibit them. 

Several readers, apparently no more comfortable with this statistic than we were, suggested other correlations worth exploring. 

My excellent research assistant at the University of Richmond School of Law, Dust Knight, and I tried a few. And none has eased our minds.

Bribe Payers Index

One reader suggested that a more meaningful correlation than the Corruption Perceptions Index, or CPI, would be the Bribe Payers Index. While the former measures perceptions of domestic corruption, the latter measures perceptions of the likelihood that a country’s companies will pay bribes when going abroad. The CPI measures most every country in the world; the BPI focuses on 28 top capital exporters.

The assumption seemed to be that countries whose companies were more inclined to pay bribes abroad would probably tend to allow facilitating payments, while countries relatively disinclined to pay bribes abroad would tend to prohibit them.

Great hypothesis, but it did not turn out to be true.

Of the 28 countries ranked on the BPI, 19 are signatories to the OECD Convention. Dust and I calculated the average scores (on the BPI’s ten-point scale) of the countries that allow facilitating payments and those that do not. Turns out that countries that allow facilitating payments rank better on the BPI than those that prohibit them (though not by a lot). 

The average score of the countries allowing such payments was 8.2, while the average for those that prohibit them was 7.9. To put that in context, an individual country that scored 8.2 would have been ranked about 9th on the BPI out of 28 countries (about equal with the UK) while a country that scored 7.9 would have been ranked 13th (equal with South Korea). Not a huge difference, but still noteworthy.

Interestingly, this pattern is roughly consistent with our earlier findings on the CPI. Less corrupt countries tend to like the exception; more corrupt countries do not. Odd.

Levels of Enforcement under the OECD Convention

Yet another reader suggested we explore potential correlations between allowance of the exception and level of enforcement of foreign bribery laws. Again, we found (somewhat counter-intuitively) that enforcing countries are more likely to allow the exception than non-enforcers.

Transparency International’s report, Exporting Corruption, divides OECD signatories into four categories of enforcement: active, moderate, limited, and “little or none.” 

The numbers here were a little messier, and not always suggestive of trends. However, we did find that almost 2/3 (64%) of the countries that prohibit facilitating payments find themselves in the “little or none” category, while only 1/3 (36%) of the countries allowing the payments are in that bottom bracket. Put another way, 2/3 of those countries that allow facilitating payments are in the limited, moderate, or active categories, while only 1/3 of the prohibiting countries are doing as well.

Again, this is roughly consistent with our findings on both the CPI and the BPI. And again, it makes me scratch my head.

Year the Convention Entered into Force

Finally, one reader suggested that we compare the years that the OECD Convention entered into force for each country. This turned out to be interesting. The first year that the convention entered into force for any country was 1999, and it did so for 18 countries. Of those 18, 39% allowed facilitation payments, and 61% did not. In other words, slightly more than 1/3 of the countries for which the convention entered into force in 1999 allowed facilitation payments.

But note what happens from there. The next year, 2000, it drops to 25%. The third year, 2001, it drops to 13%.  Then it drops to 0%. And it stays there for every subsequent year in which the convention entered into force for at least one country, with only one exception (2007, when the convention entered into force only for South Africa). 

Put another way, the percentage of countries that chose to adopt the facilitating payments exception dropped steadily each year until it reached zero, and has stayed at zero (with the single exception of South Africa). That is some of the strongest evidence I’ve seen of a trend toward prohibiting facilitating payments.

Collectively, these numbers remain fairly rudimentary. More nuanced and interesting patterns are certainly waiting to be discovered. 

Anyone looking for a dissertation topic?

______

Andy Spalding is a Senior Editor of the FCPA Blog and Assistant Professor at the University of Richmond School of Law.

Article originally appeared on The FCPA Blog (http://www.fcpablog.com/).
See website for complete article licensing information.