Safeguarding State-Owned Enterprises from Undue Influence

2. Taking specific legal and regulatory measures

Abstract

The ACI Guidelines recall that SOEs are autonomous legal entities that should be subject to and protected by the general rule of law in their countries of operation. Protection should extend to abuse of SOEs as conduits for political finance, patronage, or personal or related-party enrichment. This chapter focuses on national practices in applying specific legal measures to SOEs that can help to mitigate the risk of exploitation of SOEs to this end.

A comprehensive and clear legal framework is the backbone to promoting integrity and preventing corruption in SOEs. It is the means through which those within or interacting with SOEs can understand their rights and obligations as well as which activities and actions are considered illegal. It provides the grounds for accountability, reduces guesswork and room for impunity and acts as a blueprint against which individuals, including all levels of government, can be brought to justice.

The framework’s clarity and comprehensiveness is key. Clear laws provide less room for interpretation and discretionary decision making that can facilitate or be reflective of undue influence in SOEs while, on the flipside, ambiguity can create opportunity for corruption.

Advantages, exemptions or loopholes in legislation or enforcement of legislation granted to SOEs, can be representative of undue influence or an uneven playing field and provide opportunities for exploitation (particularly when regarding audit, accounting, or procurement). On the other hand, disadvantageous treatment of SOEs can, and has, encouraged SOEs to find illicit ways to make up for losses.

There are multiple bodies in the public sector who are responsible for setting and upholding the legal and regulatory provisions that seek to prohibit patronage, political party financing or personal or related party enrichment – whether as policy makers, overseers of its implementation or enforcers.1 For its part, the state owner can reinforce provisions of the legal framework by setting the expectation that all levels of corporate control and assurance are working effectively to ensure each SOE complies with laws in full. Such an expectation can be included in an ownership policy, for instance. The board ultimate responsibility for the enterprise’s performance and should ensure compliance risks to the achievement of objectives are properly managed. Countries also highlighted the importance of non-state actors in ensuring accountability of SOEs including with regards to compliance with the law.2 There is moreover an important role for civil society and media in bringing concerns to light and putting pressure on SOEs and officials to be held to account.

Countries’ legal and regulatory frameworks for SOEs, including their anti-corruption and integrity requirements, differ greatly depending on national legal systems and types of ownership arrangements. However, they commonly entail: a general framework for SOEs that provide rules of governance, accountability and transparency (e.g. Corporation or Commercial Law), SOE‑specific legislation, general public service or administrative legislation and criminal laws.

Specific legal measures that prohibit patronage, political financing or personal or related-party enrichment might appear across a variety of criminal and administrative laws. All countries in the study criminalise foreign bribery, and often other offences related to patronage, political financing and illicit enrichment. The measures apply primarily to SOE representatives classified as public officials and/or, in some countries, those who are in positions otherwise considered to be ‘sensitive’ or ‘high risk’. In many countries SOEs can be held liable as enterprises (as legal persons).

The application of relevant and specific measures to SOEs depend inter alia on SOEs’ representatives’ classification as public officials, and on whether any existing liability regime for legal persons applies to all or certain SOEs. In Chile, the directors, managers and officials of SOEs created by law – that is, 20 of the 28 state enterprises in Chile – are considered to be government officials for purposes of probity standards and criminal legislation (ruling No. 16.164 of 1994 of the Comptroller General of the Republic). Directors, managers, and officials of state‑owned enterprises that were not created by law – that is, the remaining eight state companies – are considered government officials for the purposes of criminal offences. Norway’s Criminal Code (§ 27) establishes penalties for enterprises: “When a penal provision is violated by a person who has acted on behalf of an enterprise, the enterprise is liable to punishment. This applies even if no single person meets the culpability or the accountability requirement. «Enterprise» means a company, co‑operative society, association or other organisation, sole proprietorship, foundation, estate, or public body”.

Appropriate steps should be taken by the state to use the legal framework to prevent the abuse of SOEs for patronage, political financing and personal or political gain. There is a myriad of ways to do this, and this chapter focuses on the legal measures that state owners can take in accordance with the relevant recommendations in the ACI Guidelines and the OECD Anti-Bribery Convention and Anti-Bribery Recommendation.3 This chapter focuses specifically on:

• Taking specific measures to prohibit personal or related-party enrichment

• Taking specific measures to apply anti-bribery legislation to SOEs

• Taking specific measures to prohibit the use of SOEs as vehicles for political party financing

• Taking specific measures to prevent patronage in SOEs.

2.1. Taking measures to prohibit personal or related-party enrichment

Personal or related-party enrichment refers, for the purposes of this report, to the situation whereby public officials or their related parties seek to exploit the position of the SOE to obtain unwarranted or unfair financial enrichment or gain. It is closely related to the concept of ‘illicit enrichment’ or ‘unexplained wealth’, as personal or related-party enrichment often involves a significant increase in assets that individuals cannot reasonably explain in relation to their lawful income (United Nations, 2003[1]).

Illicit enrichment laws are often controversial and vary between countries. Investigations into illicit enrichment will generally place the burden of proof on the investigated – that is, to justify the accumulation of wealth that is not commensurate with the position or professional circumstance of the individual. According to international bodies, illicit enrichment is said to have five key elements: persons of interest, period of interest, conduct of enrichment (that is, the significant increase in assets), intent (including awareness or knowledge) and the absence of justification.4 How a country sets boundaries on these individual elements will vary by country and will determine what is grounds for investigation in the instance that unexplained wealth or illicit enrichment is suspected. The classification of “persons of interest” might only include certain positions in the public sector or to all public officials, or it could extend to family members or other kin (such as spouses, in Argentina). The period of interest might be focused on when an individual was holding a position or in elected office but not after (Chile), or it could extend beyond tenure. The type of assets can be financial or other, including property, and other benefits could include cancellation of debt or other obligations, rights granted, or services produced. Investigations into unexplained wealth rely on supporting regulations, including clear requirements for managing sensitive or insider information, declarations of conflicts of interest and kinship ties or even declaration of assets, which will be explored in later chapters of this report.

The United Nations Convention Against Corruption would have all SOE representatives be considered as public officials so that illicit enrichment regulations would apply to them, but this is not provided for in all countries’ classification. In reality, countries more commonly take a range of legal measures in an effort to prevent personal or related party enrichment – unsurprisingly, by targeting individuals’ actions that predicate amassing of illicit wealth. They apply to SOEs in different ways.

• Primary among those are the offences contained in penal or criminal codes, that commonly include bribery and provisions related to patronage, both of which are discussed below. In France, the Penal Code targets offences of misappropriation, passive bribery and influence peddling, active bribery and influence peddling, illegal taking of interests and destruction, embezzlement and embezzlement of public funds and property. These provisions are applied to SOE representatives considered as public officials, or to SOEs where their managers and collaborators do not come under the categories of persons charged with a public service mission.

• Countries participating in this study also report to use of a range of civil and administrative laws that contribute to reducing personal or related-party enrichment.5 As per Korea’s ‘Public Service Ethics Act (Articles 3~14‑2)’, political officials such as the President, National Assembly members, heads of public institutions, deputy directors, and standing auditors must register their property, providing the state with the ability to monitor property changes, and detect or punish illegal construction by public officials inside and outside public institutions.

• In addition, many countries include measures or communicate expectations in codes of ethics, anti-corruption strategies and programmes. Some countries have specific codes for SOEs, but most often SOEs are subjected to public sector guidance. Korea’s Code of Conduct for Public Organization Employees of the “Act on Anti-Corruption and the Establishment and Operation of the Anti-Corruption and Civil Rights Commission” clearly states that “a public official shall not directly use his or her public position to unduly benefit him/herself of other people” (Art. 10).

• Finally, publicly traded SOEs may have listing requirements that require them to uphold standards that work to prevent offences aimed at amassing illicit wealth.

2.2. Taking measures to apply anti-bribery legislation to SOEs

One of the preeminent sources of corruption in or around SOEs has to do with the bribery of (passive bribery) SOE representatives or by (active bribery) SOE representatives. The OECD Foreign Bribery Report found that SOE officials were promised or given foreign bribes, and of a higher financial value, more often than any other public official in all concluded cases of foreign bribery of public officials between 1999 and 2014 (OECD, 2014[2]). SOEs can also be used as a conduit for bribery – whereby those in a position of power or authority use the SOE’s position or contracting power to secure bribes or other undue advantages from third parties. Herein lies one manifestation of ‘exploitation’ of SOEs.

There are multiple ways for anti-bribery legislation to be applied to SOEs that shapes who and how SOEs can be held liable: through application to individual SOE representatives as public officials, or to SOEs as legal persons; through criminal or non-criminal liability; and for engaging in active or passive bribery (or both) of or by foreign or domestic public officials (or both). To render it more complex, countries may have exceptions for certain categories of SOEs or representatives. These subjects are explored below.

2.2.1. Liability of individuals within SOEs

The ACI Guidelines built on the OECD Anti-Bribery Convention by calling on Adherents to take “the measures necessary to establish that applicable laws criminalising bribery of public officials apply equally to the representatives of SOE governance bodies, management and employees where these are legally considered as public officials” (II.4.i). This pushes states towards applying not only foreign bribery laws (as provided for in the Convention) but also domestic bribery laws to SOEs. This provision aims at addressing consistent concerns raised by the Working Group on Bribery in International Business Transactions, which monitors the OECD Anti-Bribery Convention, about a lack of clarity in the application of anti-bribery legislation to SOEs, and the existence of carve‑outs for SOEs in the framework that criminalises foreign bribery.

The Convention focuses on holding individuals and legal persons accountable for offering, promising, or giving bribes to foreign public officials – “the supply side of bribery”. The recently-adopted 2021 Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions (hereafter “Anti-Bribery Recommendation”) also seeks to address the “demand side of bribery” – that is, receiving bribes – calling on parties to “raise awareness of bribe solicitation risks among relevant public officials, particularly those posted abroad, and the private sector, with particular attention to high-risk geographical and industrial sectors of operation”. Some countries’ existing legislation already requires public officials to report instances of solicitation, such as in Korea. This is rather important for the SOE sector, given that the OECD 2014 Foreign Bribery Report found SOEs to be offered or given more bribes than any other public official.

Bribery of foreign public officials is now a crime in all 44 Parties to the Convention.6 Based on the responses of participants in this thematic study, it appears that almost all countries apply these laws criminalising bribery (at least foreign bribery) to individual representatives of SOEs, predominantly because of the classification of individuals within SOEs as public officials (for instance in Chile, Colombia, Japan, Latvia, Lithuania, New Zealand, Spain, Sweden, Switzerland, and South Africa). They are either included in the definition of the public official itself, or explicitly listed as persons to which the provisions (articles) apply (OECD, 2020[3]).7

2.2.2. Liability of SOEs as legal persons

The Anti-Bribery Recommendation goes beyond holding individual SOE representatives liable and applies to SOEs as a whole – that is, as a ‘legal person’.8 Such a framework for corporate liability is a cornerstone of the Convention and the liability of legal persons has become a key feature of the emerging legal infrastructure for the global economy.

Specifically, the Anti-Bribery Recommendation asks signatories to “ensure that SOEs can be held liable for the bribery of foreign public officials in international business transactions”.9 Note that this does not require countries to hold SOEs criminally liable – as the Convention itself does not require countries to make legal persons criminally liable for foreign bribery where they are not otherwise subject to criminal liability.10

All countries participating in this thematic study are signatories to the Convention, except Croatia which, at the time of writing, had begun the accession process to become an OECD member country. Thus, all other countries herein have established liability of legal persons for foreign bribery as per the Convention. A way to meet the requirements of the more recent Anti-Bribery Recommendation and the ACI Guidelines – that is, to ensure SOEs are liable for foreign and domestic bribery – is to make SOEs liable as legal persons (LP) – whether criminally liable or not. Table 2.1 provides an overview of which countries apply the LP regime to SOEs, as well as provides insights on their liability for foreign bribery specifically. It demonstrates that the vast majority of countries assessed apply the LP regime to SOEs.

Table 2.1. Liability of state‑owned enterprises as legal persons for foreign bribery

Country	Application of LP regime to SOEs	Observations about liability of LP for foreign bribery (based on selected quotes from phase monitoring reports of the OECD’s Working Group on Bribery)	Legal basis for legal person liability for foreign bribery
			General Criminal Law	Case Law	Other statute	Bribery-specific legislation
Argentina	•	The LP Llaw covers all relevant legal persons, including state‑owned and state‑controlled enterprises (Article 1 of Law 27 401)	°	°	•	°
Australia	•	According to authorities, all corporate bodies should be covered, even if owned or controlled by State.	•	•	°	°
Austria	•	OECD’s WGB found LP liability for entities with or without “legal personality”, including “not-for-profit” and “public” entities. Public LPs not liable for acts in “exercise [of] state authority.	•	°	•	°
Belgium	•	Belgium’s LP liability provisions apply to “public law legal persons”, “private law legal persons” (e.g. “commercial companies and associations” and “certain entities that do not have legal personality but are assimilated to legal persons”.	•	•	°	°
Brazil	•	Though LP law does not expressly cover SOEs, in 2016, Brazil enacted an implementing Decree and several other legal texts in support of the LP law, which clarified application to SOEs (Phase 3 Follow-Up).	°	°	•	°
Bulgaria	•	Bulgaria claims that “state‑owned or controlled entities” can be held liable.	•	°	•	°
Canada	•	For purposes of the CFPOA, a “person” includes “Her Majesty and an organisation”, while “organisation” is further defined as “a public body, body corporate, society, company, firm, partnership, trade union or municipality”, or “an association of persons that (i) is created for a common purpose, (ii) has an operational structure, and (iii) holds itself out to the public as an association of persons”. Section 2 of the Criminal Code (incorporated by reference in CFPOA section 2)	•	•	°	•
Chile	•	Chile’s LP law also applies to “State companies” and would also cover State‑controlled “private companies”.	•	°	°	°
Colombia	•	Law 1 778 of 2016, which governs “administrative liability of legal persons” for the bribery of foreign public officials, permits the Superintendence of Companies to impose sanctions on “legal persons”, including fines. Article 2(2) of Law 1 778 specifies that the law applies to “state‑owned industrial and commercial enterprises” as well as “companies in which the State has a share” or “mixed private public ownership companies”. Colombia confirms that non-profits can be sanctioned if they are “legal persons”; however, Law 1 778 does not apply to entities that lack legal personality.	°	°	•	°
Czech Republic	•	LP liability law does not define “legal persons”, but Civil Code provides that LP covers “associations of natural persons or legal persons or legal entities” as well as “other entities designated as such by law”. WGB believed this was broad enough to cover “non-profit” entities as well. Finally, the LP liability law expressly provides that State ownership of shares “‘does not preclude criminal liability’”.	°	°	•	°
Denmark	•	SOEs can be liable “for acts committed in the course of the performance of functions comparable to functions exercised by natural or legal persons.” According to prosecutor guidelines, SOEs can be liable “when carrying out activities corresponding or similar to activities carried out by private individuals or companies”.	•	°	°	°
Estonia	•	All “companies founded in private interests are considered legal persons in private law”. Estonia excludes State and local governments as well as “legal persons in public law”, such as public libraries or radio, which “do not exist primarily to conduct economic activities”. Authorities asserted that SOEs would be covered as they primarily “perform economic activities”.	•	°	°	°
Finland	•	Finnish law requires SOEs to “abide by the same norms” as other Finnish LPs, but public and private LPs are exempt from liability for “offences committed in the exercise of public authority”.	•	°	°	°
France	•	Article 121‑1 PC applies to “all” LPs, “whether public or private, for profitable or non-profitable aims, French or foreign, with the exception of the State”.	•	°	°	°
Germany	•	Administrative offences apply to all LPs “based on private law”, whether private or “state‑owned or state controlled”. WGB suspects also applies to entities “under public law”.	•	°	•	°
Greece	•	Greece’s law applies to any type of “legal persons” and covers “State‑owned and State‑controlled enterprises”. Non-profit entities are also “legal persons”.	°	°	•	°
Hungary	•	Hungarian authorities assert SOEs are covered because they are defined as “legal persons” and “function in accordance with the Civil Code”.	•	°	•	°
Iceland	•	Icelandic authorities explain that SOE will be covered like any other “joint stock company or other enterprise”, provided offence occurs in course of commercial operations.	•	°	°	•
Ireland	•	The term “bodies corporate” would cover “private, public or statutory companies”.	°	•	•	•
Israel	•	No legal barrier prevents “the prosecution of State‑owned or State‑controlled companies for criminal offences.”	•	•	°	°
Italy	•	Public entities are subject to Decree 231/2001, unless not “enterprises”, not engaged in for-profit activities, or performing public functions.	•	°	•	°
Japan	•	Japan explained that, so long as entities are “juridical persons”, then “there are no restrictions on the types of companies” subject to liability, including “state owned or state‑controlled” entities.	°	°	•	°
Korea	•	Korea explained, with support from case law, that “no legal barrier to prosecuting … state‑owned or state controlled” LPs.	•	•	°	•
Latvia	•	Law covers “partnerships”, “private law legal persons” and “State or municipal capital companies”.	•	°	•	°
Lithuania	•	State and municipal enterprises, as well as public entities whose owner or shareholder is the State or municipality, and joint-stock and closed joint-stock companies, all or part of whose shares are owned by the State or municipality can be held criminally liable (Article 20 para. 6 of the Criminal Code).	•	°	°	°
Luxembourg	•	OECD WGB found LP liability applied broadly to “all legal persons, including those incorporated under public law”, except for “the State and municipalities”. Phase 3 para. 29; see also Phase 3 para. 54 (“a legal person is an entity effectively endowed with legal personality by virtue of a law”).	•	°	°	°
Mexico	°	OECD WGB has found that Mexico cannot impose liability on state‑owned or state‑controlled enterprises”.	•	°	•	•
Netherlands	•	Under Dutch civil law, “legal persons” include “all kinds of corporations hav[ing] legal personality” as well as “religious associations”, “companies limited by shares”, “limited liability” companies, and “foundations”. Phase 2 para. 198. Further, the “Dutch authorities confirm that state‑controlled and state‑owned companies are covered”.	•	•	°	°
New Zealand	•	Given New Zealand’s law, the foreign bribery offence presumably would apply to any “incorporated” or “unincorporated” entity, whether state‑owned enterprise or non-profit.	•	•	°	°
Norway	•	Penal Code applies to an “enterprise” including “a company, society or other association, one‑man enterprise, foundation, estate or public activity”. While SOEs and non-profits not expressly covered, they could be captured by the terms “company”, “society” or “association”.	•	°	°	°
Poland	•	The law covers “state‑owned and – controlled entities and organisations”	•	°	•	°
Portugal	•	Portuguese law covers expressly SOEs and all other legal persons, excluding, however, those “acting in the exercise of public power prerogatives”.	•	°	°	•
Slovak Republic	•	The Act expressly excludes certain legal persons from criminal liability, including “the Slovak Republic and its authorities” as well as “legal persons which … were established by operation of law”. Section 5(1). However, it also specifies that an “[o]wnership interest” held by the State or another excluded entity “does not exclude criminal liability” of the legal person owned by the excluded entity. Section 5(2). In addition, the OECD Secretariat has searched the Slovak register of commercial entities for 7 the Slovak SOEs and confirms that all 7 were on the register.	•	°	•	°
Slovenia	•	According to authorities, SOEs are not considered part of the “Republic of Slovenia” and thus can be held liable.	•	°	•	°
South Africa	•	South African authorities assert that SOEs can be held liable. However, given lack of case law, WGB decided to follow-up the application of the law in practice.	•	•	•	•
Spain	•	At time of Phase 3, certain LPs are excluded from liability, such as “commercial public entities” and “public companies … providing services of general economic interest”. Phase 3 para. 44. However, by Phase 3 Follow-up, Spain anticipated enactment of legal reforms.	•	°	°	°
Sweden	•	“According to the Swedish authorities, ‘entrepreneur’ is a general term that is used in different statutes. The uncodified definition of the term is ‘any natural or legal person that professionally runs a business of an economic nature’. They add that the term covers state owned and municipal trading companies.”	•	°	°	°
Switzerland	•	Swiss law covers “private law legal persons”, “companies”, “sole proprietorships” and “public law legal persons except for territorial corporations”. Phase 3 para. 27. According to officials, this would cover “public law companies”.	•	°	°	°
Türkiye	°	Turkish LP liability provision applies to a “civil legal person”. WGB had “serious doubts” whether this would cover state‑owned or state‑controlled enterprises, as this term would exclude any company in which “State owns more than 50% of the shares”.	•	°	•	°
United Kingdom	•	According to UK officials, “state‑owned or controlled bodies” would also be considered “relevant commercial organisations” for purposes of Section 7.	°	•	°	•
United States	•	All US “state‑owned and state‑controlled companies are subject to criminal responsibility”, if domestic concern.	°	•	°	•

Note: the information presented here is about liability of legal person (in this case, SOEs) for foreign bribery. It derives from OECD (2016[4]), Liability of Legal Persons for Foreign Bribery: A Stocktaking Report (2016), which is based on the experience and knowledge of the OECD’s Working Group on Bribery and its monitoring reviews of Parties to the Convention. Where relevant, the table has been updated to include more recent information from the Working Group on Bribery monitoring reviews and responses to the 2021 Questionnaire.

2.2.3. Exemptions and enforcement concerns

Table 2.1 suggests that SOEs are generally liable for foreign bribery offences as legal persons that may come in addition to the criminal liability of individuals within SOEs considered as public officials.

However, there may be exceptions for certain types of offences or the circumstances under which those offences are carried out. Exceptions might be applied for certain individuals within SOEs or for categories of SOEs. While often justified, the state owner and SOEs should be aware of exemptions and the risks that they may present (opaque loopholes). Exceptions may depend on how a country defines public official, legal persons, or state‑owned enterprise, as well as the SOE level of incorporation, the share of state ownership or the presence of public policy (vs. commercial) objectives.

• In Spain, certain offences will only apply to certain types of public officials. In France, certain offences in the Penal Code target and apply only to specific persons “holding public authority, entrusted with a public service mission (commonly called “public officials”) or vested with a public elective mandate”.

• Exemptions could take the form of excluding particular types of illicit activities from the penal code. New Zealand’s Crimes Act11 presently contains exclusions for facilitation payments (small, routine, payments for the purpose of expediting government processes) and payments that were not at the time an offence in the relevant country (with the defendant having the burden of proving this). Switzerland’s Criminal Code allows for two exemptions to its criminal provisions by exempting two acts from being classified as “undue advantages”: a) advantages permitted under public employment law or contractually approved by a third party; b) negligible advantages that are common social practice.12

• Exemptions can be found in other pieces of legislation – including in SOE‑specific or statutory legislation. In Mexico, where Article 29 of the Federal Electricity Commission Law and Article 30 of Law of Mexican Petroleum establishes that the members of the Board of Directors are not subject to administrative responsibility (the Law on General Administrative Responsibility establishes bribery as a crime). Nonetheless, the directors can be responsible for damages that may be caused to the SOEs, derived from acts, facts or omissions they incur, or damages that may be caused by the violation of their obligations, in accordance with Article 31 of Petroleos Mexicanos Law and 30 of the Federal Electricity Commission Law.

Exceptions for SOEs may not only be made in law but in their enforcement. As of 2020, 19 out of 44 Parties to the Convention had yet to conclude a foreign bribery enforcement action (OECD, 2020[5]). A lack of enforcement may be especially concerning when considering that the cases of foreign bribery concluded in 1999‑2014 involved more SOE representatives than any other public official.13

Moreover, with SOEs being often important for national economic interest, or having connections to natural or legal persons that may be in a position to exert undue influence, the state shareholder may have disincentives to hold SOEs to account where it could negatively impact its political interests at stake. It is for this reason that the ACI Guidelines mirrors Article 5 of the Convention, by stating that: “Investigation and prosecution of cases of corruption or related unlawful acts involving SOEs should not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved” (V.8.2). While establishing and applying anti-bribery legislation to SOEs is a critical first step, its enforcement is paramount to improving integrity in the state‑owned sector.

2.2.4. Considering the use of SOEs as conduits for bribery

The ACI Guidelines is also the first international standard to explicitly encourage states to take “the measures necessary to prohibit the use of SOEs as vehicles to engage in bribery of foreign and domestic public officials” (II.4.ii). Note that this latter provision focuses not only on criminalising the behaviour of SOE officials or high-level representatives within SOEs internal corporate structures, but those seeking to exploit SOEs.

While most participating countries have measures in place to apply anti-bribery legislation to SOEs or individuals within SOEs, there are no reported cases where legislation explicitly prohibits the use of SOEs for bribery for the benefit of another. In the latter scenario, SOEs would be considered a victim to the abuse of power by public or political officials outside of the company. However, there are provisions in anti-bribery legislation that might help in this regard:

• In Japan, it is a crime for engaging in bribery “for Exertion of Influence” (Article 197‑4a). In this case, a public officer can be punished for accepting, soliciting, or promising to accept a bribe as a reward for influencing, or agreeing to influence, another public official to cause them to act illegally or refrain from official duties, following a request from another individual”. In this case an individual can be found guilty of accepting a bribe to influence an SOE official, where the latter is considered to be a public official. Or, similarly, an SOE official considered as a public official can be punished for accepting to unduly influence another public official.

• Multiple countries establish punishable offences when bribes are offered or given on behalf of a third person. For instance, New Zealand’s Crimes Act of 1961 provides that “every official is liable to imprisonment for a term not exceeding seven years who, whether within New Zealand or elsewhere, corruptly accepts or obtains, or agrees or offers to accept or attempts to obtain, any bribe for himself or herself or any other person in respect of any act done or omitted, or to be done or omitted, by him or her in his or her official capacity” (Section 105: Corruption and bribery of officials). In Lithuania, “whoever, directly or through an intermediary, accepts, requests, or accepts the promise of a bribe, for themselves or another person to act or refrain from acting in such a way that violates obligations arising from their employment, occupation, position or function, shall be punished by a prison sentence of two to five years (Section 328, Penal Code). In South Africa, the Constitution prohibits bribery for the “benefit of that public officer or for the benefit of another person”.

• SOE representatives, whether or not considered as a public official depending on the country, can be liable (criminally or otherwise) for accepting or offering bribes on behalf of a third party (for instance, a politician). On the other hand, public officials outside of SOEs can be liable for accepting or offering bribes on behalf of SOE representatives.

• Other supporting instruments and legislation may also provide disincentives for using bribes to exploit SOEs. Latvia’s Law on Prevention of Conflict of Interest in Activities of Public Officials considers state‑owned and state‑controlled enterprises as public entities and their corporate executives and board members as public officials. It envisages punishments for accepting a bribe, being an intermediary and giving or offering or promising of bribes.

2.3. Taking measures to prohibit the use of SOEs as vehicles for political party financing

The ACI Guidelines recommend “taking the measures necessary to prohibit use of SOEs as vehicles for financing political activities and for making political campaign contributions” (II.4.iii). As suggested in the ACI Guidelines’ Implementation Guide, such provisions can be and are introduced into political party financing laws, electoral codes and other electoral legislation, and can be included in the laws governing SOEs. Advanced practice sees states encouraging SOEs to introduce such provisions in their Codes of Ethics or other similar documents. The state may go further towards some countries’ good practice of stating that SOEs should not be used for any purpose related to political parties in the ownership policy, anti-corruption policy documents or strategies (OECD, 2020[3]).

Table 2.2. Limitations on political financing by SOEs

Country bans for partially-owned SOEs (2020) and on the legislation without reference to a specific type of SOE (2021‑22)

Country	Partially-owned SOEs		References to legislation for all SOEs
	Ban for donations to political parties	Ban for donations to candidates
Argentina	Yes	Not available	There is no specific legislation on party financing in companies with state participation. However, Law No. 26 215 on Financing of Political Parties seeks ways to obtain resources, which do not include funds from state‑owned companies.
Brazil	Yes	Yes	In the Direct Unconstitutionality Action trial nº 4.650/DF, the Supreme Court, judged as unconstitutional the legal provisions that authorised the donations done by companies to electoral campaigns.
Chile	Yes	Yes	Decree with force of a law (D.F.L.) No. 3 of 2017, which establishes the text of Law No. 19.884, Article 26. Nevertheless, the provisions of Title V of Law No. 18.603, as well as in paragraph 2 of this title, the pre‑candidates, candidates and political parties may not receive, directly or indirectly, electoral campaign contributions from State bodies, from SOEs, nor from those in which the State, its companies, or institutions have participation.
Colombia	Yes	Yes	Law 1 778 of 2016, Article 33: “Legal entities who have financed political campaigns for the Presidency of the Republic, for governor, for mayors or to the Congress, with contributions greater than 2% of the maximum sums to be invested by the candidates in the electoral campaigns in each electoral district, who will not be able to enter into contracts with public entities, including decentralised entities, of the respective administrative level for the which candidate was chosen”.
Croatia	Yes	Yes	Pursuant to Article 46 of the Act on the Financing of Political Activities, Election Campaigns and Referendums (OG 29/19 and 98/18), the financing of political parties, independent representatives, independent councillors, independent lists or lists of groups of voters and candidates from, inter alia, state bodies, public enterprises, legal entities with public authority, companies and other legal entities in which the Republic of Croatia, according to the State Property Register, has more than 5% of shares or public enterprises, legal entities with public authority, commercial companies and other legal entities in which the self-government unit has more than 5% of shares or stakes and public and other institutions founded by the Republic of Croatia or a self-government unit or owned by the Republic of Croatia or a self-government unit
Czech Republic	Yes	Yes	Act 424/1991 on Associations in Political Parties and Political Movements.
Estonia	Yes	Yes	State Assets Act § 88 section 1 Article 11 and section 2 are regulating allowed sponsorship Anti-Corruption Act Money Laundering and Terrorist Financing Prevention Act – politically exposed person § 9’1 section 2 Article 9: Political Parties Act – donation prohibition § 12’3 section 2 Article 2:
Finland	Yes	Yes	Limited liability company law requires the Share Holder Meeting to approve and decide about all the donations the limited liability company does. All the SOEs are limited liability companies in Finland.
France	Yes	Yes	Article L. 52‑8 of the Electoral Code prohibits legal persons (with the exception of political parties or groups) from participating in the financing of a candidate’s electoral campaign. This prohibition applies to both private and public companies.
Greece	Yes	Yes	Articles 5 & 7 of PD 15/2022 (FEK 39/A’/1‑3‑2022) Political Parties Financing
Hungary	Yes	Yes	Act XXXIII of 1989 on the Operation and Financial Management of Political Parties declares clearly in Section 4 subsection (2): Legal persons and unincorporated business associations are not allowed to make any financial contribution to political parties, and political parties shall not be authorised to accept any financial contribution from legal persons and unincorporated business associations.
Japan	Yes	Yes	The Political Funds Control Act, 1948 (as amended by Act No. 135 of 2007) prohibits companies that “receive entire or partial capital investment or donation from the state” from contributing political donations (Art. 21‑3.2). Corporations (as well as trade unions, employee organisations and other organisations) “shall not contribute to a person other than political parties and political fund organisation” (Art. 21‑3.2).
Korea	Yes	Yes	There are no legal provisions to prevent SOEs engaging in or being used for financing political activities or making political campaign contributions, but there is a Supreme Court ruling that SOEs employees, like public officials, cannot engage in election activities by maintaining political neutrality. A public official cannot engage in political acts such as supporting or opposing a specific party or political organisation or a specific person with money or material for political purposes pursuant to Articles 3, 22, 65 of the State Public Officials Act, and 27 of the State Public Officials Service Regulations
Latvia	Yes	Yes	Law on Prevention of Squandering of the Financial Resources and Property of a Public Person states that SOEs can donate (financial means or its assets) only for activities related with promotion of culture, art, science, education, sport, environment, or health protection or social assistance.
Lithuania	Yes	Yes	Republic of Lithuania Law on Funding of, and Control over Funding of, Political Campaigns.
Mexico	Yes	Yes	The Mexican legal system prohibits the use of public resources of state‑owned enterprises to finance political activities or carry out political campaigns, by general rules applicable to all the federal administration (Constitution, Art. 190; General Law on Electoral Crimes, Art. 11; Administrative Responsibility Art. 73; Federal Penal Code, Art. 222‑3, 401‑3; General Law of Electoral Institutions and Procedures; Federal Electricity Commission Law; Petroleos Mexicanos Law).
Netherlands	No	No	The Political Parties Financing Act, 2013 (amended 2019) allows for all political parties and candidates to receive unlimited contributions from private individuals and legal entities.
New Zealand	No	No	There is not specific legislation for SOEs, however they are covered by the wider legislation: Official Information Act 1982; The Crimes Act 1961; The Secret Commissions Act 1910 Guidance for Ministers and government departments - Guidelines for Government Advertising approved by Cabinet and issued on 20 November 1989 - Cabinet Office Circular: CO (20) 1 – Government Decisions and Actions in the Pre‑Election Period
Norway	Yes	Yes	Norwegian Code regarding political parties (code‑2005‑06‑17‑102) § 17a (2) Political parties and their parts may not receive any contributions in any kind from legal subjects that are under the state or other public authorities’ control. This includes SOEs.
Slovak Republic	Yes	Yes	Constitutional Act No. 357/2004 Coll. on the Protection of Public Interest in the Performance of offices – Article 2, Article 6
South Africa	Yes	No	The Political Party Funding Act (PPFA), 2018 states that “Political parties may not accept a donation from any of the following sources: (...) (d) state‑owned enterprises” (Art. 8 (1)). 10. (1) No person or entity may deliver a donation to a member of a political party other than for party political purposes (Art. 10 (1)). Independent candidates are currently exempt from the Political Party Funding Act and its regulations.
Spain	Yes	No	The present legislation covers “contribution to the electoral accounts of funds from any Administration or Public Corporation, Autonomous Organization or Parastatal Entity, from public sector companies whose ownership corresponds to the State, the Autonomous Communities, the Provinces or the Municipalities and of the mixed economy companies, as well as of the companies that, by means of a current contract, provide services or carry out supplies or works for any of the Public Administrations” (Organic Law 5/1985, of 19 June, on the General Electoral Regime, Article 128).. It does not cover contributions to individuals.
Sweden	No	No	Swedish Companies Act (Sw: Aktiebolagslag (2005:551)) Act (2018: 90) on transparency in the financing of parties (Sw: Lag (2018:90) om insyn i finansiering av partier).
Switzerland	No	No	Transparency of financing of political campaigns is regulated since 18 June 2021, in Art. 76c LDP (Loi fédérale sur les droits politiques). Above a limit of CHF 50 000, financing of election and voting campaigns must be disclosed. However, this rule is not specifically for SOEs, and the effective date has not yet been determined.
Türkiye	Yes	Yes	According to 18th article of DL. 399, which aims to regulate the personnel regime of the SOEs, the personnel of the enterprise and affiliates shall not be engaged in political activities or become a member to political parties.
Totals	21 / 25	18 / 24

Source: Data the first and second columns come from IDEA (International Institute for Democracy and Electoral Assistance (IDEA), n.d.[6])

Political Finance Database, http://www.idea.int/political-finance/ (accessed on 24 February 2022); information in column three comes from 2021 Questionnaire responses.

Table 2.2 shows which countries participating in the study have banned donations by partially-owned SOEs to both political parties (84%) and candidates (75%) (International Institute for Democracy and Electoral Assistance (IDEA), n.d.[6]). The table also shares country responses to the OECD questionnaire, providing details on relevant legislation and, in some cases, specific references in legislation to SOEs. Limitations on political party financing by all SOEs, without distinction between degrees of ownership, are less clear. More work needs to be undertaken to understand how political financing limitations apply to all SOEs, but the initial findings suggest that there may be different rules for different corporate forms and state holdings (specifications were not requested from respondent countries).

In addition to the legislation cited above, there are other policies and rules that work to uphold the country’s legislative approach towards SOE funding of political parties. These include Codes of Ethics (Mexico), ownership policies (Norway) and issued instructions from control bodies of the public sector (Chile), or reference in SOE corporate bylaws. In the Czech Republic, annual reports of joint-stock companies include a statement on the audit of political party financing. Countries that tend to take a more arms-length approach to ownership highlighted the role of the board in ensuring compliance with relevant legislation.

In some cases, the legislation will target SOEs as potential providers or donors, while in others the onus will be placed on the candidate or politician to refuse contributions from SOEs. In some cases, contributions are allowed, subject to regulations that, for instance, limit a politician from entering into a contract with a corporate contributor for a period of time thereafter.

It is an important first step to establish limitations on political party funding, or to go further yet in establishing a ban, to reduce the risk that SOE resources are exploited to finance political activities or campaign contributions. However, the risk of override or violation of rules remains. While no country reported there being any exemptions to the relevant legislation, there can still be opportunities for contributions to be made that facilitate and obscure SOE relations with political parties. For instance, some countries allow indirect benefits of funding, such as providing free airtime on state‑owned radio, providing space for campaign materials or meetings, or subsidising postage cost among others. Indeed, one country reported that SOEs are not allowed to finance political parties but can make contributions to political events. Attention should be paid to other in-kind benefits that SOEs could offer and, otherwise, that checks, and balances and legal enforcement are key (OECD, 2016[7]).

Contributions may also be ruled upon on a case‑by-case basis. Switzerland reported: “According to the case law of the Federal Supreme Court, companies which – irrespective of their organisational form – are directly or indirectly under the determining influence of a community are in principle obliged to political neutrality. However, an opinion in the run-up to a vote is permissible in individual cases if a company is particularly affected by the vote, namely in the implementation of its legal or statutory mandate and is affected in its economic interests in a similar way to a private party. In such cases, the company may in principle make use of the information media otherwise used in the voting campaign, but it must in any case exercise a certain degree of restraint. It must represent its interests in an objective and factual manner and may not use any means that are frowned upon or reprehensible. This also includes not interfering in the referendum campaign with disproportionate use of public funds (e.g. funds generated by exploiting legal or de facto monopolies and compulsory tariffs) Cf. BGE 145 I 1 E. 7 and 8 (only in German)”.

The subject of political financing is often closely linked to the risk of patronage in SOEs, whereby board or management positions are used as rewards for political loyalty or to reap the promise of future gains by the politician that put them in place. The next section explores how countries are using the legal and regulatory framework to prohibit patronage in SOE decision making bodies.

2.4. Taking measures to prevent patronage in SOEs

Patronage, in the context of SOEs, is the act whereby those in a position of power (whether at the state or SOE level) bypass or ignore formal processes, requisite qualifications, or limitations on their personal or state power to nominate or appoint members of SOE boards or executive management. Patronage can manifest as, or be a reflection of, nepotism, cronyism or favouritism in appointments.

Many of the provisions of the ACI Guidelines seek to prevent patronage – including those related to nominations and appointments that are covered later in this report (Chapter 3). The OECD’s standards posit that reducing patronage are critical for improving integrity in SOEs insofar as it can reduce the politicisation or manipulation of decision-making bodies in SOEs, where oftentimes SOE positions are used as reward for political allegiance or to secure the promise of future illicit gains (e.g. placing an insider in the company to divert profits to the person who placed them there).

Countries may criminalise or make punishable the act of patronage by classifying it as one of the intended benefits of a bribe. Since patronage can involve in-kind favours, ‘payments’ or rewards, many countries’ anti-bribery rules will apply in this case too. In other words, it can be a punishable offence to offer, accept, solicit or agree to accept a bribe in return for a position within an SOE.

Aside from such restrictions, it appears that patronage itself is not cited in legal frameworks. Patronage is instead tackled through a series of provisions across the legal and regulatory framework. Countries cited reference to a slate of rules, including state assets and companies acts, commercial codes and civil codes, whistle blower protection laws and of course criminal codes. They may be supported by Codes of Conduct or Ethics, such as in Sweden. Patronage appears to be targeted primarily through regulations on board nominations processes and, to a lesser extent, nomination, and appointment of executive management. These include incompatibilities for candidates to the board, terms for dismissal or penalties for abuse of authority of board members, penalties for violations of an ownership policy or duty of loyalty of public employees.

2.5. Final commentary on the implementation of select provisions of the ACI Guidelines

Box 2.1. ACI Guidelines provisions: a legal framework that helps to prevent the abuse of SOEs for personal or political gain

II.4. [The state should take] appropriate steps… to prevent the abuse of SOEs for personal or political gain, including by:

1. Taking the measures necessary to establish that applicable laws criminalising bribery of public officials apply equally to the representatives of SOE governance bodies, management and employees where these are legally considered as public officials.

2. Taking the measures necessary to prohibit the use of SOEs as vehicles to engage in bribery of foreign and domestic public officials.

Taking the measures necessary to prohibit use of SOEs as vehicles for financing political activities and for making political campaign contributions.

2.5.1. Commentary on recommendation II.4.i and ii

Thanks to the power of the OECD Anti-Bribery Convention, all countries participating in this study have criminalised foreign bribery. As Parties to the Convention, except Croatia which, at the time of writing, had begun the accession process to become an OECD member country, all countries herein have established liability of legal persons for foreign bribery as per the Convention. The vast majority apply the liability of legal persons regime to SOEs. It should follow then, that virtually all countries in this report hold SOEs liable – criminally or otherwise – for foreign bribery.

Countries comply with the ACI Guidelines’ II.4.i if they: (i) criminalise foreign as well as domestic bribery and apply it to SOE officials, while at the same time (ii) can hold SOEs liable as legal persons for foreign and domestic bribery (or other related offences as provided for in their legislation). In future assessments of the implementation of the ACI Guidelines, attention could be paid to any differences in SOE liability for engaging in bribery of domestic public officials.

However, there may be exceptions where certain SOEs or certain SOE representatives are not subject to the aforementioned measures. Loopholes commonly exist in legislation that might – on the one hand – make it difficult for SOEs to understand their responsibilities or – on the other hand – provide opportunity to exploit carve‑outs in legislation. More work could be undertaken to understand how such carve‑outs impact the overall accountability of SOEs for engaging in domestic or foreign bribery.

While the Convention focuses on offering, promising, or giving bribes to foreign public officials (supply), the adoption of the Anti-Bribery Recommendation brings promise to improving the overall integrity in SOEs, in that it calls SOEs to develop and adopt adequate internal controls, ethics and compliance programmes or measures, and countries to promote awareness of the risk of bribe solicitation, which should also force Parties of the Convention to place a greater focus on tackling SOEs as bribe recipients. Since these provisions of the Anti-Bribery Recommendation are new, future analysis can help to determine how they could work together towards strengthening the implementation of the ACI Guidelines recommendations II.4.i and ii.

However, countries are less clear on prohibiting the use of SOEs as vehicles for engaging in bribery or foreign or domestic public officials. Only a few allow for individuals to be held liable for engaging in bribery on behalf of or through a third party. This report calls on countries to pay closer attention to how individuals within their countries can be held accountable for exploiting SOEs for the purposes of bribery.

2.5.2. Commentary on recommendation II.4.iii

The ACI Guidelines call on countries to take measures to prohibit the financing of political parties. By one measure, most countries participating in the study have banned donations by at least partially owned SOEs to both political parties (84%) and candidates (75%). However, it is unclear how states regulate the contributions made by fully owned SOEs, as well as in-kind contributions. The results to the survey underpinning this report suggest that there may be different rules for different corporate forms and state holdings within a given country. Bodies responsible for upholding the relevant regulations vary, which can also disperse the accountability of SOEs in this regard. State owners may wish to clarify where carve‑outs may exist for certain types of SOEs, while assessing whether the oversight of third parties (e.g. an electoral monitoring commission), is sufficient to provide the state owner assurance that the SOE’s conduct is compliant.

References

[6] International Institute for Democracy and Electoral Assistance (IDEA) (n.d.), Political Financing Database, https://www.idea.int/data-tools/data/political-finance‑database.

[5] OECD (2020), Enforcement of the Anti-Bribery Convention, https://www.oecd.org/daf/anti-bribery/OECD-Anti-Bribery-Convention-Enforcement-Data‑2021.pdf.

[3] OECD (2020), Implementation Guide: OECD Guidelines on Anti-Corruption and Integrity for State‑Owned Enterprises, https://www.oecd.org/corporate/ca/Implementation-Guide‑ACI-Guidelines.pdf.

[7] OECD (2016), Financing Democracy: Funding of Political Parties and Election Campaigns and the Risk of Policy Capture, OECD Public Governance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264249455‑en.

[4] OECD (2016), Liability of Legal Persons for Foreign Bribery: A Stocktaking Report, https://www.oecd.org/daf/anti-bribery/Liability-Legal-Persons-Foreign-Bribery-Stocktaking.pdf.

[2] OECD (2014), OECD Foreign Bribery Report: An Analysis of the Crime of Bribery of Foreign Public Officials, OECD Publishing, Paris, https://doi.org/10.1787/9789264226616‑en.

[1] United Nations (2003), United Nations Convention Against Corruption, https://www.unodc.org/unodc/en/treaties/CAC/.

Notes

← 1.  Countries rightly assigned responsibility for policy making and design of the legislative framework to the legislature. The justice branch was commonly attributed a main responsibility for enforcement and monitoring (and, as in Norway, for designing the criminal code), along with the courts system or other prosecution authorities, and/or the police (as cited in Estonia, Norway and the Slovak Republic). Control bodies of the public sector also play an important role – namely, Anti-Corruption bodies, Supreme Audit Institutions or Comptroller Generals (or similar control). As regards the implementation of specific political financing regulations – certain countries (Croatia, Lithuania, and Mexico) pointed to the importance of the electoral bodies or commissions, which has a specialised prosecutor for electoral crimes. In certain countries, those responsible for monitoring SOEs’ finances have an important role to play in upholding laws created to insulate SOEs from abuse or exploitation. This includes Ministries of Finance, financial investigations or intelligence units (Estonia), financial markets or securities regulators and even banks when issues relate to SOE insolvency.

← 2.  In Sweden, the Swedish Anti-Corruption Institute (Sw: Institutet Mot Mutor “IMM”) administers the Code to prevent Corruption in Business and Swedish Corporate and Governance Board (Sw: Kollegiet för svensk bolagsstyrning) administers the Swedish Code of Corporate Governance.

← 3.  Referring specifically to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and the 2021 Recommendation for Further Combating Bribery of Foreign Public Officials in International Business Transactions, which aims to support the implementation of the Convention.

← 4.  According to UNCAC, AUCPCC and IACAC.

← 5.  Countries cited, for instance: Law of Ethics in the Exercise of Public Function, Law on Fiscal Responsibility, Law on the Adjustment of Public and Private Interests in the Civil Service, Law on Prevention of Squandering of the Financial Resources and Property of a Public Persons, Anti-Corruption Laws and Protection of Public Interest in the Performance of Offices.

← 6.  The 44 Parties to the Convention include all 38 member countries of the OECD as well as six others: Argentina, Brazil, Bulgaria, Peru, Russian Federation and South Africa.

← 7.  This list is not exhaustive and is based on self-reporting by countries.

← 8.  A legal person is also known as a juridical entity that the law recognises as having rights and obligations separate from their members or owners (OECD, 2016[4]).

← 9.  See Anti-Bribery Recommendation, Good Practice Guidance on Implementing Specific Articles of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Annex I), sub-section on “Article 2 of the OECD Anti-Bribery Convention: Responsibility of Legal Persons” (B).

← 10.  The Convention does not require Parties to establish criminal liability of legal persons for foreign bribery when “under the legal system of a Party, criminal responsibility is not applicable to legal persons” (commentaries to the Anti-Bribery Convention, comment 20; see also Anti-Bribery Convention, art. 3).

← 11.  Crimes Act 1961, section 105: Corruption and bribery of officials: Exceptions.

← 12.  According to art. 322decies al. 2 Swiss Criminal Code.

← 13.  The OECD 2014 Foreign Bribery Report found that 27% of all foreign bribes were offered, promised or given to state‑owned enterprise representatives, surpassing the category of recipients being customs officials (11%).