Bribery Awareness Handbook

A new publication from OECD, The OECD Bribery Awareness Handbook for Tax Examiners;

Tax inspectors may be an eagle-eyed lot, but in today’s global, technology-sophisticated world, their job has become extra challenging. The OECD’s 1996 Recommendation on the Tax Deductibility of Bribes to Foreign Public Officials is designed to discourage international corruption by disallowing bribes that take the form of tax-deductible expenses, for instance. But it is up to the tax officials in each country to ensure compliance, and to screen for illegitimate claims. The trouble is how to identify a payment that may be a bribe. Is it easy to distinguish between a fraudulent invoice and a real one, or to detect payments to fictitious employees, or illicit transfers to offshore bank accounts?

The OECD has designed its Bribery Awareness Handbook for Tax Examiners to help officials answer such questions. It describes various bribery techniques, provides indicators of bribery, suggests interviewing techniques and gives examples of bribes previously identified in tax audits. For instance, a fictitious business may be used for transferring funds, or indirect payments to public officials may be made via a law firm for ostensible legal services. The handbook also includes a checklist and, to help facilitate the monitoring of trends and assessing risks, it provides a standardised form allowing the tax examiner to give feedback to his headquarters...

Although the existence of legislation denying the tax deductibility of bribes is a strong deterrent to bribery of foreign public officials, says the OECD, the practical implementation of such legislation should not be neglected. The deterrent effect of these legislative changes depends crucially on the measures put in place to ensure that taxpayers are complying with the law.

Some examples of corporate slush funds from the Handbook;

- The usual practice in schemes operating in the foreign arena is for the domestic parent corporation to use a foreign subsidiary, a foreign consultant, or a foreign bank account to “launder” funds so that cash could be generated and repatriated back to the domestic parent to provide a slush fund for payments to domestic public officials. The funds would not be repatriated of course if the payment were made to a foreign public official.

- Slush fund generated by rebates from a foreign legal consultant: The foreign legal consultant, who also performed legitimate consulting services for the domestic corporation, over bills the company and then transfers the money back to the treasurer in cash.

- Officers and/or key employees are paid additional compensation based on their promise that they will contribute either a percent of the bonus or the net amount (net of income taxes) as a political payment or bribe payment.

- Corporate over-capitalisation: Real or personal property is acquired by the business entity for more than fair market value. The excess is rebated or “kicked back” and used by the promoter of the scheme to make the contribution to the political organisation or the payment to the public official.

- Contributions are paid to law firms which act as conduits by depositing the funds in trustee accounts from which they are disbursed to the political campaign committee designated by officers of the contributing corporation or to a public official.